Gap (GPS)

Operating Expenses

Due largely to investments in fall marketing at Gap and Old Navy, operating expenses were up $40 million in the third quarter of fiscal year 2009 compared with last year.

The company expects operating expenses in the fourth quarter of fiscal year 2009 to be up about $100 million to $120 million compared with the prior year. This increase is due to increased marketing expense, higher variable store-related costs related to the company’s objective of driving comparable store sales improvement, and higher bonus expenses in the fourth quarter.

The company expects fourth quarter marketing expenses to be up about $45 million compared to the fourth quarter of last year.

Operating Expenses

Operating expenses were down $52 million in the second quarter of fiscal year 2009 compared with the prior year. The company expects operating expenses in the third quarter of fiscal year 2009 to be flat to up about $20 million compared with the third quarter of last year, primarily driven by the expected increase in marketing expense of about $25 million in the third quarter of fiscal year 2009 compared with the third quarter of last year.

Operating Expenses

Operating expenses include:

The classification of these expenses varies across the retail industry.

Operating expenses decreased $73 million, or 8 percent, in the first quarter of fiscal 2009 over the prior year comparable period. The decrease was driven primarily by lower store related expenses as a result of the decline in sales, lower corporate overhead expenses primarily related to bonus, payroll, and employee benefits, and a favorable foreign exchange impact.

Operating Expenses

The company reduced operating expenses by $73 million in the first quarter of fiscal year 2009 compared with the prior year. The company expects second quarter operating expenses to be down about $30 million to $50 million compared with last year. Second quarter marketing expenses are expected to increase about $10 million to $15 million versus the prior year.

Operating Expenses

Operating expenses include:

The classification of these expenses varies across the retail industry.

Operating expenses decreased $478 million, or 1.0 percent as a percentage of net sales, in fiscal 2008 compared with fiscal 2007 primarily due to the following:

Operating expenses as a percentage of net sales were flat, but decreased $55 million in fiscal 2007 compared with fiscal 2006 primarily due to the following:

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The remaining decrease is due to lower payroll and other expenses across the organization.

Operating Expenses

Operating Expenses

The company reduced fiscal year 2008 operating expenses by $478 million. In the first quarter of 2009, the company expects operating expenses to be down $10 million to $30 million versus the prior year.

Operating Expenses

Operating expenses include:

The classification of these expenses varies across the retail industry.

Operating expenses decreased $95 million, or 8.8 percent, in the third quarter of fiscal 2008 over the prior year comparable period driven primarily by lower store payroll and lower corporate overhead expenses.

Operating expenses decreased $261 million, or 8.2 percent, during the thirty-nine weeks ended November 1, 2008 over the prior year comparable period driven primarily by lower store payroll, lower corporate overhead expenses, lower repair and maintenance expenses, and lower marketing expenses.

Operating margin was 11.1 percent and 9.5 percent for the third quarters of fiscal 2008 and 2007, respectively, and 11.0 percent and 8.1 percent for the thirty-nine weeks ended November 1, 2008 and November 3, 2007, respectively.

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Operating Expenses

Operating expenses include:

The classification of these expenses varies across the retail industry.

Operating expenses decreased $74 million, or 7.1 percent, in the second quarter of fiscal 2008 over the prior year comparable period driven primarily by lower store payroll, less remodel related expenses, and lower repair and maintenance expenses.

Operating expenses decreased $166 million, or 7.9 percent, during the first half of fiscal 2008 over the prior year comparable period driven primarily by lower store payroll, less remodel related expenses, lower repair and maintenance expenses, and lower marketing expenses.

Operating margin was 10.7 percent and 6.1 percent for the second quarters of fiscal 2008 and 2007, respectively, and 11.0 percent and 7.3 percent for the first halves of fiscal 2008 and 2007, respectively.

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Operating Expenses

Operating expenses include:

The classification of these expenses varies across the retail industry.

Operating expenses decreased $92 million, or 8.8 percent, in the first quarter of fiscal 2008 over the prior year comparable period driven by lower store payroll, fewer remodel related expenses as a result of fewer remodels, and lower marketing expenses.

Operating margin was 11.3 percent and 8.6 percent for the first quarters of fiscal 2008 and 2007, respectively.

Operating Expenses

Operating expenses include:

The classification of these expenses varies across the retail industry.

Included in operating expenses are costs related to store closures and our sublease loss reserve. The following discussion should be read in conjunction with Note 6 of Notes to the Consolidated Financial Statements.

Operating expenses as a percentage of net sales were flat, but decreased $55 million in fiscal 2007 compared with fiscal 2006 primarily due to the following:

The remaining decrease is due to lower payroll and other expenses across the organization.

Operating expenses as a percentage of net sales increased 2.2 percentage points, or $333 million, in fiscal 2006 compared with fiscal 2005. The increase was primarily due to:

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Operating margin was 8.3 percent, 7.7 percent, and 11.1 percent in fiscal 2007, 2006, and 2005, respectively. For fiscal 2008, we expect operating margin to be approximately 8.5 percent to 9.5 percent.

Operating Expenses