AGM 2017

May 17, 2017

Art Peck, our President and CEO, Mayo Shattuck, Chair of Audit and Finance Committee, and Katherine Tsang. I also want to recognize Brian Goldner, who wasn't able to join us at today's meeting. Additionally, I want to recognize Domenico De Sole, who's not standing for re-election. He could not be with us today, but we want to thank Domenico for his many contributions since joining the board in 2004. Finally, we're pleased that our co-founder, Doris Fisher, could be here today. I'd like to kick things off with a few remarks about our continued transformation and how we're evolving against our key strategies. Then I'll hand it over to Julie Gruber and Art Peck. It's abundantly clear that the specialty retail industry is undergoing dramatic disruption. The consumer has spoken. Their preferences have evolved, and as a result, there's an extraordinary shakeout taking place across our landscape. Change or fail was my father's philosophy, as a board, along with Art and his management team, we are continuing to embrace this mantra. Rapid change is the new normal, this statement is as relevant today as it was when my parents introduced the company in 1969. In recent years, we've shared with you how we are taking action to ensure our customers find our brands appealing and relevant as their preferences and shopping habits continue to evolve. Our customers are at the heart of everything we do, because when we win with our customers, we succeed as a company. Art will share more about this, I wanted to tell you that we're seeing real progress against the strategies that we put in place at the beginning of Art's tenure. To revisit, our priorities are rooted in product, customer, and talent. When we put these in place, we knew these were critical areas. We're even more confident today that we have the right strategies to drive our transformation. Coupled with our strong balance sheet and a fiscally responsible approach, we have a solid foundation that empowers meaningful change. How these strategies are achieved is equally as important, and that's why and one of the reasons we're truly differentiated. We're in a unique position of being able to leverage the operating scale of our organization and our portfolio of iconic brands. Harnessed correctly, this translates into innovation and efficiencies driven from the center, which empower our brands to deliver for our customers. We are also continuing to prioritize our values, a pillar of our business. This means continuing our effort to make our business more sustainable by setting bold goals and creating opportunities for people and communities touched by our business around the world. As a board, we are engaged in ongoing dialogue with Art and his management team, and I'm very pleased at the team he's assembled. This alignment has kept our focus steadfast on making progress and accelerating our transformation. Along with the board, I remain confident in Art's ability to lead us to success. He has an incredible team leading our brands and functions who bring deep talent, strong tenure, and diverse expertise to the enterprise. With this winning combination, I know Gap Inc. will emerge a winner. I'm now pleased to introduce Julie Gruber, Global General Counsel, Corporate Secretary, and Chief Compliance Officer. Thank you, Bob, for calling the Gap Inc. shareholders' meeting to order. Welcome, everyone, and good morning. I'd like to ask all of you to please turn off your cell phones or other electronic devices at this time. Today's meeting is being webcast. The webcast will be recorded and available on gapinc.com. Those participating by webcast will be in listen-only mode. Those participating here in person can find the rules of the meeting at the bottom of the distributed agenda. We are holding this meeting pursuant to notice mailed to our shareholders of record as of March 20th, 2017. As Bob said, after the formal portion of this meeting, we will hear from Art, then we'll take questions from our shareholders. Please note there is a two-minute time limit for anyone addressing the meeting, and we ask that you limit yourself to one question. Adam Scott of Deloitte & Touche LLP, our independent registered public accounting firm, is also present to answer questions as appropriate. Please note only shareholders may ask questions at this meeting. With that, we will now vote on the six proposals outlined in the proxy materials. The six items on today's agenda are, one, the election as directors of the nominees named in our proxy statement. Two, the ratification of the selection of Deloitte & Touche LLP as our independent public registered accounting firm. Three, an advisory vote on the frequency of the advisory vote on the overall compensation of the company's named executive officers. Four, an advisory vote on the overall compensation of the company's named executive officers. Five, the amendment and restatement of the Gap Inc. employee stock purchase plan. Six, the shareholder proposal outlined in our proxy. We have received an affidavit of notice of mailing of the annual meeting of shareholders of Gap Inc. from Broadridge Financial Solutions. This states that notice of the meeting has been mailed as required and as outlined in our bylaws. The affidavit will be filed with the minutes of this meeting. Andrew Wilcox, on behalf of Broadridge Financial Solutions, is here and acting as the Inspector of Elections for this meeting. Andrew tells me that a count of the shares represented by proxy shows that we do have a quorum to conduct business at this meeting. Before we vote on the six proposals, are there any shareholders who would like to vote in person by ballot or who would like to turn in or change their proxy? If so, please raise your hand and we will assist you. Seeing no hands, we will now proceed with the six items of business before this meeting. The first proposal is the election as directors of the 10 nominees outlined in our proxy statement. The second proposal is the selection of Deloitte & Touche LLP as our independent public registered accounting firm for the fiscal year ending February 3rd, 2018. The third proposal is an advisory vote on the frequency of the advisory vote on the overall compensation of the company's named executive officers. The fourth proposal is an advisory vote on the overall compensation of the company's named executive officers. The fifth proposal is the amendment and restatement of the company's employee stock purchase plan. The sixth proposal is the shareholder proposal. Is the proponent of the shareholder proposal present? Can you stand and identify yourself? Good morning. My name is Justin Janoff. I have proposal number 6. We ask investors to support our proposal, as it will hopefully shine some light on why Gap has joined with other corporations in vilifying religious freedom. In response to religious freedom measures in Indiana and Arkansas, Gap claimed that such efforts, quote, "legalize discrimination" and that, quote, "These new laws and legislation that allow people and businesses to deny service to people based on their sexual orientation turn back the clock on equality and foster a culture of intolerance." That's not true at all. The federal government and 31 states have heightened religious freedom laws already. These laws say that the government should not interfere with an individual's religious freedom unless doing so is necessary to reach an important government goal. Next, they say that if the government can reach this important goal in a way that doesn't abridge their religious freedom, it should choose that other method. That's it. The federal Religious Freedom Restoration Act was co-authored by Senator Ted Kennedy and signed into law by President Bill Clinton. The Indiana and Arkansas measures imitated those laws. Did Gap speak out against the Clinton-Kennedy federal religious freedom law? I don't think so. Corporations and the mainstream media have recently expressed concern that religious freedom laws will somehow lead to discrimination against homosexuals. There's zero evidence for this concern. These laws only require the government to avoid interfering with religious freedom if it can do so while achieving important government goals. One of these goals, of course, an established law in every state of the Union, is outlawing discrimination. Last year, Gap also joined in a legal brief supporting the Obama administration's lawsuit against North Carolina's so-called bathroom bill. Again, the company's position distorted the issues. The DOJ was actually seeking authority to rewrite bedrock foundational federal law in violation of the U.S. Constitution's basic separations of power. While many in this room would likely have little problem with the Obama administration revising federal law, they would scream bloody murder if President Trump gave himself the sole authority to rewrite federal statutes. That's exactly the type of power he would now have if the DOJ lawsuit that Gap supported proceeded. In response to our proposal, the company's board claimed that, quote, "We do not believe exiting certain regions protects or enhances human rights. On the contrary, local engagement protects and improves human rights." Where is your engagement on the local level to the level that you used in Indiana, Arkansas, and North Carolina, or your cries of religious discrimination in nations where Gap operates that actually persecute homosexuals and give women few, if any, rights? It's hard to take the company's statement at face value since the far-left movement that Gap is a major part of has actually called for economic boycotts of states such as Indiana and North Carolina over the same legislative efforts that Gap opposes. Our proposal simply asks management to prepare a report identifying Gap's criteria for operating in regions with significant and systematic human rights violations. If the company is worried about basic religious freedom laws in the U.S., we must question why the company operates in regions with actual discrimination and human rights atrocities. Please join me in supporting proposal six. Thank you. The board has reviewed this proposal and given it careful consideration. The company's proxy statement contains a careful and thorough response to this proposal. Based on the reasons cited and as further described in the company's proxy statement, the board of directors opposes the adoption of this resolution. The board does not believe it is in the best interest of the company or its shareholders and recommends a vote against proposal six. The polls for these six proposals are now open. If anyone would like to vote by ballot, please raise your hand. If you have already turned in a proxy card or have voted electronically, you do not need to vote by ballot unless you wish to change your vote. The polls for the proposal before the meeting are now closed. Andrew, can you provide me with a preliminary report? The 10 nominees for director listed in the proxy statement have been elected. The selection of Deloitte & Touche as the company's independent registered public accounting firm has been ratified. The shareholders have voted to recommend that an advisory vote on the overall compensation of the company's executive officers occur every year. The advisory vote to approve the overall compensation of the named executive officers has been approved. The amendment and restatement of the Gap Inc. employee stock purchase plan has also been approved. The shareholder proposal has not been approved. The final report of the Inspector of Elections will be filed with the minutes of this meeting. The vote results will be filed with the Form 8-K. This concludes the formal portion of our meeting. The annual shareholders meeting is now adjourned. In a few minutes, we will hear from Art. Before I hand the meeting over to Art, I want to take the opportunity to address a few administrative matters. The information shared today may contain forward-looking statements. There are important factors that could cause our results to differ from these forward-looking statements. Information regarding factors that could cause our results to differ can be found in our annual report on Form 10-K for the fiscal year ending January 28th, 2017, which is available on gapinc.com. As a reminder for shareholders attending this meeting in person, questions will be taken at the end of Art's presentation. I would now like to welcome Art Peck, President and CEO, to the podium. Good morning, and thank you for coming. Before I even stepped into this role, we stepped back as a team and a board and reflected on the state of the industry and where we were as a company. The world that we're living in today, that Bob referenced, the world of very significant disruption does not come to us as a surprise because we saw that. If it wasn't a surprise, I would be worried. If we didn't have a plan, I would be worried. If we weren't aggressively executing that plan, not just to compete in the new world that we're in, but to win, I would be worried. I worry about many things, but that's not what I worry about. We have a plan that starts with a foundation of brands that are objectively beloved by our customers. That is a very solid foundation. We have a plan that sits on the shoulders every day of 135,000 amazing, dedicated employees around the world that work for this company and also love those brands. Beyond that, it's a plan that starts with product. Because if we don't have product in our stores that our customers love and emotionally connect to and take home and feel good when they wear it, we will not win. That's the work that we've been doing now that is far enough along, I'm very pleased to say, that it is demonstrating different business outcomes in our business. It's work about being responsive in product, about being always on trend, about getting our fit right and nailing it every day, about quality that exceeds our customers' expectations and many other things. First and foremost, it's a foundation of great product. Beyond that, it's innovation, which we are committed to as a company, and that innovation starts inside of our product. Like these jeans from Gap that are high stretch, water repellent, and thermally responsive. I feel guilty when I wear them because they're so comfortable, but they're founded, again, on a foundation of technical innovation that we're seeing impact product categories across the company. Third, an exceptional low friction, high touch customer experience. People ask, are stores relevant? Stores are relevant if they're relevant. They're relevant if they deliver an exceptional experience that you can't get anyplace else that matters to a consumer, and they enable a consumer to have a successful experience in our stores. At a time when much of the industry, in fact, much of retail, is going in a direction that every day provides a less engaging and a less successful experience in stores, we're committed to exactly the opposite. We're also committed to an amazing digital experience, and frankly, it's not about stores or digital, but it's about the overall experience that our customers have in engaging with our brands, starting with a smartphone, potentially. Potentially ending up in a store on a mobile checkout device, or maybe starting in a store and ending up on a phone someplace. It's a low friction, high touch customer experience. Bob mentioned, we are again, well underway in leveraging our size and scale to advantage, to efficiency for all of our brands. We intend to make the disruption not into a headwind but a tailwind. It's only a headwind if you're going in the wrong direction, and we're committed and believe very strongly and are seeing the validation of the fact that we are going in the right direction. I want to thank the board of directors, all but Brian here in the room. I want to thank the Fisher family for their continued commitment and for giving me and my team the opportunity to lead this company. I want to thank my team, I want to thank 135,000 employees. Most importantly, our customers, who again, love these brands and are with us every day. The last thing I want to note, which again, Bob referenced, I want to underline, is our continued commitment to the values of this organization, to the values of inclusion, the values of democracy, the values of accessibility, and the values of giving back to the communities that we do business in, whether it's here as exhibited through This Way Ahead, where we are continuing to work with at-risk youth, many times bringing them into our stores and providing them their first employment. Whether it's our P.A.C.E. program, where we have a steadfast heads down commitment to bring 1 million women through that program over the next few years around the world, our commitment to the environment, our commitment to sustainability. Those are as important as our products are because they inform every day what we do and how we do it. Thank you very much. Julie, you want to join me? We're now going to open the meeting up for questions. If you have a question, we'd ask that you raise your hand, and when the microphone comes to you, please provide your name. As a reminder, there is a two-minute limit, and we ask that you limit yourself to one question. Are there any questions? Questions related to reporting that is available to shareholders. In the most recent 10-Qs and 10-Ks, there's great discussion about the goals for omnichannel operations, but no financial details in that. I'm curious how we're supposed to monitor your progress when you focus on what are now increasingly archaic metrics like square footage, sales per square footage, and comp sales. If you're trying to compete in an Amazon world, why can't you give us more information related to omnichannel sales? Yeah, let me address that. Terry, if you want to say anything as well, I'm happy to. Yeah, in the world that we're in, we reflect all the time on what are the right metrics, first and foremost, starting with us and frankly with me and the board to hold the team accountable for the progress that we're making. There's some metrics that we've lost behind. I will acknowledge the fact that we, in this new world, there are metrics that we will probably need, and it's something that's certainly first and foremost on our agenda. A simple example of that is we've traditionally had for our stores a field incentive plan that covers sales inside of our stores. Increasingly, I'm thinking about the fact that we should be incenting our stores not just for the customer that's in the four walls, but for the customer that may have came in, discovered the brand, in Athleta as an example, that's decided to shop from her couch on an ongoing basis but fell in love with the brand because of the experience that we delivered in our stores. I think it's a very good call-out that as dynamic as the world is changing around us, that it continues to call for something we're committed to, which is full transparency in terms of reporting. Thank you. Are there other questions?