Gap (GPS)

Company Revises Fiscal 2006 Guidance

SAN FRANCISCO – January 4, 2007 – Gap Inc. (NYSE: GPS) today reported net sales of $2.34 billion for the five-week period ended December 30, 2006, which represents a 4 percent decrease compared with net sales of $2.44 billion for the same period ended December 31, 2005. The company’s comparable store sales for December 2006 decreased 8 percent compared with a 9 percent decrease in December 2005.

Comparable store sales by division for December 2006 were as follows:

“Although Banana Republic continued to make good progress in its turnaround, we continued to experience negative traffic trends at Gap and Old Navy,” said Sabrina Simmons, senior vice president, corporate finance, Gap Inc. “Given the weak traffic trends, we needed to take significant action on promotions and markdowns at these two brands which drove Gap Inc.’s overall merchandise margins significantly below last year. We expect continued margin pressure into January as we work to clear remaining holiday product at Gap and Old Navy.”

Based on its holiday sales performance, the company announced that it is revising its fiscal 2006 guidance. The company now expects full-year earnings per share to be $0.83 to $0.87 versus previous guidance of $1.01 to $1.06. Full-year operating margins are now expected to be about 7 percent and free cash flow is now expected to be about $650 million for the year. Please see the reconciliation of free cash flow, a non-GAAP financial measure, to the GAAP financial measure in the table at the end of this release.

The company reiterated that it expects the percent increase in inventory per square foot at the end of the fourth quarter of fiscal 2006 to be in the low-single-digits versus prior year.

“We are clearly disappointed with Gap and Old Navy’s holiday sales and overall performance for the year,” said Paul Pressler, president and CEO, Gap Inc. “Given that we did not gain the traction we had expected, the management team, with the active involvement of our board of directors, is currently reviewing Gap and Old Navy’s brand strategies. We are committed to making the necessary changes to improve performance.”

Year-to-date net sales of $14.75 billion for the 48 weeks ended December 30, 2006, decreased 2 percent compared with net sales of $15.07 billion for the same period ended December 31, 2005. The company’s year-to-date comparable store sales decreased 7 percent compared with a 5 percent decrease in the prior year.

As of December 30, 2006, Gap Inc. operated 3,184 store locations compared with 3,126 store locations last year.

For more detailed information, please call 1-800-GAP-NEWS to listen to Gap Inc.’s monthly sales recording. International callers may call 706-634-4421.