Welcome to the Annual Gap Inc. Meeting of Shareholders. Please welcome the Gap Inc. Chairman, Bob Fisher.
Good morning and welcome to our 39th Annual Meeting of Shareholders. First, I'm pleased to introduce our Board of Directors, Domenico De Soleil, Bill Fisher Tracy Gardner
Bela Goran
Bob Martin, who chairs our Compensation and Management Development Committee Jorge Montoya Art Peck, our CEO Neot Shattuck, the Chair of Audit and Finance and Kathleen Tsang. I also want to acknowledge Padma Warrior, who is here with us today. While she's not standing for reelection, we want to thank Padma for her contributions, many contributions to our Board over the past two and a half years. Amna, thanks very much and we wish you the best of luck in your new venture. We're sorry to see you go.
And finally, I'm pleased that our co founder, Doris Fisher, could be here today as well. I'll spend a few minutes talking about our transformation, then I'll hand it over to Julie Gruber and Art Peck. Let me start by discussing the rapid change across the retail industry, driven by evolving technology and consumer behaviors. As a Board, we are very engaged in how the industry is changing and we remain committed to accelerating our transformation and winning in this next era of retail under Art's leadership. Over the past year, Art has built a strong management team comprised of top talent in the business.
Together, they're focused on the right strategies that will enable the business to deliver into the future. Art will speak about this in a few moments. In 2015, the management team focused their energy on building the right product capabilities to help us more consistently deliver for our customers. Now we're scaling those capabilities across the enterprise, while continuing to innovate our shopping experience centered around the customer. Additionally, management is taking action to accelerate opportunities to leverage our size to increase efficiency.
At the same time, we remain committed to growing sales in our global brands, anchoring and regaining market share in our largest market, North America and continued growth in China. We recognize our transformation won't happen overnight, but our Board and management team is clear on where we need to take the business. And we remain confident in Art's ability to lead this journey, performing more consistently going forward and fueling long term growth. In closing, our brands are among the strongest in the world. We are confident in our financial foundation and our opportunity to grow globally.
As we take steps to sharpen our focus on areas where we have the greatest opportunity for growth, we are confident in Gap Inc. Stability to transform and win. Now I'm pleased to introduce Julie Gruber, Global General Counsel, Corporate Secretary and Chief Compliance Officer. Thank you very much.
Thank you, Bob, for calling the Gap Inc. Shareholders Meeting to order. Good morning and welcome to everyone. I'd like to ask everyone to please turn off your cell phones and other electronic devices at this time. Today's meeting is being webcast and the webcast will be recorded and available on gapinc.com.
Those participating by webcast will be in listen only mode. For those participating here in person, the rules of this meeting are on the bottom of the distributed agenda. We are holding this meeting pursuant to notice mailed to all our shareholders of record as of March 21, 2016. As Bob said, after the formal portion of the meeting, we'll hear from Aart and then we'll answer questions. Please note there is a 2 minute time limit for anyone addressing this meeting.
Adam Scott of Deloitte and Touche is here in person from our independent registered public accounting firm. He is also available to respond to shareholder questions as appropriate. Please note that only shareholders may ask questions at this meeting. We will now vote on the 4 proposals outlined in the proxy materials. The 4 items on the agenda are: 1, the election of directors of the 10 nominees named in our proxy statement 2, the ratification of the selection of Deloitte and Touche LLP as our independent registered public accounting firm 3, an advisory vote on the overall compensation of the company's named executive officers and 4, approval of the amendment and restatement of the company's 2011 long term incentive plan.
We have received an affidavit of mailing of notice of the annual meeting of shareholders of GAAP, Inc. From Broadridge Financial Solutions. This states that notice of the meeting has been mailed as required and is outlined in our bylaws. The affidavit will be filed at the minutes of this meeting. Andrew Wilcox, on behalf of Broadridge Financial Solutions, is here and acting as the Inspector of Elections.
Andrew is over here. Andrew tells me that the 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 4 proposals, are there any shareholders who would like to vote in person by ballot or would like to turn in or change their proxy? If so, please raise your hand and we will assist you. I see no hands, so we will now proceed with the 4 items of business before this meeting.
The first proposal is the election of directors of the 10 nominees named in our proxy. The second proposal is the selection of Deloitte and Touche LLP as our independent registered public accounting firm for fiscal year ending January 28, 2017. The 3rd proposal is the advisory vote on the overall compensation of the company's named executive officers. The 4th proposal is the approval of the amendment and restatement of the company's 2011 long term incentive plan. The polls for these 4 proposals are now open.
Again, if you would like to vote by ballot, please raise your hand and we can provide you with a ballot. If you've already turned in a proxy card or voted electronically, you do not need to vote by ballot unless you wish to change your vote. The polls for each proposal before this 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 and Touche as the company's independent registered public accounting firm has been ratified. The advisory vote on the overall compensation of the company's named executive officers has been approved and the amendment and restatement of the Gap Inc. 2011 long term incentive plan has been approved. The final report of the Inspector of Elections will be filed with the minutes of the meeting and the vote results will be filed on a Form 8 ks. This concludes the formal portion of our meeting.
The Annual Shareholders Meeting is now adjourned. In a few moments, we will hear from Art Peck. But before I hand the meeting over to Art to say a few words, I want to address a few administrative matters. The information shared today may contain forward looking statements. There are important factors that could cause our actual results to differ from these forward looking statements.
Information regarding factors that could cause results to differ can be found in our annual report on Form 10 ks for the fiscal year ended January 30, 2016, which is available on gapinc.com. As a reminder, for shareholders who are attending in person, questions will be answered at the end of Aart's presentation. I'd now like to welcome to the podium our CEO, Art Peck.
Thank you, Julie. That was brilliant. And thank you, Bob, and good morning. So yesterday, I was walking the 2.5 blocks from Bart down in Embarcadero to the building. And I'm about 3 quarters of a block in and I hear, are you Bart?
And 3 quarters of my instinct is to say no and keep walking. But I acknowledge that I was and it was a young woman who had just joined the company 3 weeks ago ish, 30 years old. So my natural inclination is to talk to her, find out what she does, but to also ask her, of course, why did you join the company, which I do whenever I meet employees in our stores or someone who's new. And she looked at me like I was kind of dimwitted and said, Because I love these brands. And at the core of what we are as a company is brands, brands that are beloved by our customers.
No way are we satisfied with the performance right now of our business, but we have an amazing asset across the portfolio of brands that we have and an asset that I have a high degree of confidence in going forward. So she's here today. She's committed. She's actually on our purchasing team. And I asked her, what are you excited about when you come to work?
She says, I'm excited about making this company great again. And it's that passion that lives in 165,000 people around the world that is also the core asset that we have. That passion of those employees through our brands is unbeatable. Two words on my mind right now. Two words and Bob used at least one of them, if not both.
One is acceleration. When I spoke to you a year ago after just assuming these responsibilities, I talked about change, not just the imperative for change, the need for change, but the opportunity for change. And we started last year, as Bob referenced, focused on rebuilding our product capabilities. Why product? At our core, we win 1 T shirt and 1 pair of jeans at a time.
1 T shirt and 1 pair of jeans at a time. And we win because of the emotional connection we build between the products we have in our stores and the joy that people forget from wearing those products. What those products say about them as an individual, how they express themselves, the confidence they have in themselves. And if we don't win a product, we won't win. The world around us today is one that is a place of accelerating change for retail.
Even if you look at the Q1, at the volatility of traffic, And there's a myriad of excuses being talked about by the pundits today of what's going on in retail, whether it's the weather, or it's the weather card, an election year, this, that and the other thing. What is undeniable is an accelerating pace of change around how customers are engaging brands, how customers are shopping, where they go for information, how they look to explain their affiliation with brands. So when I say acceleration is one of my words, it's accelerating the change that we began to take on many months ago and accelerating change on a broader front. Yes, it's product, pivoting the company's product capabilities to a modern advantaged place. It's also digital.
The bulk of our traffic today, and if you're a retailer out there, this applies to all of you, is on mobile today. That is a radical change from where the world was even a year or 2 years ago. And if we don't engage our customers where they are, they will engage someone else at the end of the day. Product, digital, mobile, logistics, supply chain, the world is changing and we're accelerating the change in this company in order to my second word, distort. Distort our energy towards the places that we can win.
Bob mentioned scale. I truly believe and we're seeing this today that the world of specialty apparel retailing will reward scale on a global basis in a way that historically hasn't. We are structurally advantaged to exploit that. It is not something we have fully exploited and we are moving aggressively as we speak to make sure that we are taking advantage of that opportunity. To store our energy towards places that we know we can win, whether that's our brands, our channels or our geographies.
We saw the active trend happen, 8, 10 years ago. We bought Athleta and then we put Athleta's product active product in our brands. And today, we are one of the largest active apparel companies on the planet. And that's an example of distortion towards one of the most important apparel trends that has happened in the last decade. If you fast forward on active, by the year 2020, even if the growth rate starts to diminish, active apparel will be a third of the global apparel market.
A third of the global apparel market. So distortion, that's my other word, acceleration of change across a broad front and distortion of our energy, our investments and our talent towards the places that we can win. At the same time, this is a company that has much good going on. If you look at our stores, even in what has been for the industry, a Q1 of disappointing traffic in places and almost unexplainable traffic patterns that the industry has seen. We have stores that are positive comping, many of them.
We have products that are driving significant sales. We have customers connecting with our products. And so there is much good going on today, but not enough and not consistently enough to drive the results that we know we can achieve. And there's good in how this company does business, which is a critical piece. Glenn used to talk about what we do and how we do it.
I had the opportunity maybe a month or plus ago to accept an award on behalf of the company by the Catalyst Group. And this was an award that for the first time was given to 1 company only and one country and that Prime Minister Trudeau was there as well to accept the award on behalf of the gender diversity and ethnic diversity efforts that he is affecting in Canadian politics. So it's me sharing the stage with him, which was an honor. But for us, it was accepting really an acknowledgment of the culture that I think started, I'm sure, with Don and Doris, where it wasn't about gender diversity, ethnic diversity, religious diversity, sexual preference. It was about finding the best talent on the planet to deliver results.
And it was an honor to accept that. And there's effort underway elsewhere. We are one of the world's largest cotton consumers. Cotton is one of the world's largest water consuming crops and water is an issue globally today. And so we're beginning to put our shoulder against how do we think about water usage in cotton.
No cotton is recycled today. Is there a recycling opportunity in cotton? And so it is a combination of our great brands, the products that we produce, our capabilities, but the foundation of amazing values that this company sits on that makes me extremely bullish about the future in front of this company. Change is an imperative right now. Change is an opportunity.
Change is the place where you create advantage. And that is the work that we're doing right now by distorting our energy towards places to win and accelerating the change on many fronts. So I want to thank the Board for your partnership. I want to thank you, Doris, for being present every day, physically present many times and generous with your criticism. Sometimes a little stingy with your praise, but I appreciate both of those.
Keeps us honest every day. I want to thank my team for the work that they are doing. They're really doing probably 2.5 jobs right now, driving a business, but also driving significant change underneath the covers. And most importantly, I want to thank the 165,000 employees in this company around the world that are at the rock face of our customers every day. The energy, the spirit and the passion you bring is amazing.
Thank you. And Julie, back to you.
Thank you, Art. Now we're going to open up the meeting to questions. Are there any questions? There's a microphone here.
I'll break the ice here. You mentioned the digital revolution and we all know how significant that has been and will continue to be. Can you tell us what you're doing to drive your online sales and coupled with those millennials or whatever they're called today that are really, really forcing this whole transition on us? Thank you. I can tell you many things.
Do I have a 2 minute time limit as well? It is the pivot and it's digital really because I would have said 5 years ago, e commerce. E commerce sounds almost quaint today in terms of what's going on from a consumer standpoint. So I just think about the broad range of what we're doing. It is many things.
First of all, fundamentally, it is about engaging the consumer here. We see the millennial consumers today not just using this device, but oftentimes this is their primary, if not exclusive form of engagement. And they are not just opening emails, going through looking at an app, but they're actually doing they're conducting their life and their commerce on this device. And so we have aggressive efforts underway to meet our customers where they are. And there's a phrase that's easy to say, harder to do, called digital first.
Some of digital first is thinking about things specifically like make sure you're shooting your marketing assets so that they effectively render on this real estate and present an immersive holistic emotional brand experience. With all due respect to my leaders in the room, I think Athleta is doing an incredible job every day of presenting the face of that brand beyond simply the commerce experience as it's rendered on this device. And there are other elements as well that are really important to us. We've talked for some time now about making sure that our inventory is available omni channel, another buzzword in the industry. What that means in its simplest form is that our supply of products is able to be frictionlessly matched with where demand is, where the demand is here, in a store or you're in a store and there isn't a unit and it's pulled out of someplace else.
The more we can make sure that wherever demand materializes and wherever our inventory is, the better we will be obviously in providing an exceptional customer experience. I would say the 3rd piece, which is really critical for us is how do we pivot our marketing voice to the channels that our customers engage on. Her single largest apparel influence today isn't an unnamed magazine that I won't call out that starts with a V. It's Pinterest. And so to be present where she is, present in the social conversation, present in the conversation that is taking place about our brands, oftentimes digitally, that's a critical element.
And so it's a broad front of things. It's also about making sure that we have an easy, effective, frictionless e com experience, if I go back to that word. And then the last thing that is on my mind today without crediting anything is, are we truly where our customer is as they have continued to evolve in their shopping patterns. Places of the world like China has an example, we have a strong, almost dominant presence on Tmall as a 3rd party site, which aggregates many vendors together. And so again, without previewing anything, I think we need to be not encumbered by the past and make sure that we are going to where our customer is and meeting them there every single day.
So I can talk for 2 hours about this. We're in a world again where the customer is moving very, very fast and we are running very hard to make sure that we're meeting them where they are. Thank you for the question.
Are there any other questions?
Okay. Thank you. With regards to capital allocation, over the last 4 years, you've spent about $4,300,000,000 buying back the stock at a price double what it is today. And I can assure you that an institutional shareholder, a portfolio manager or analyst who made that purchase would be at risk of losing their job. And I'm curious if the Board can comment on having now spent at double today's price.
And to go a bit further, over the last 16 or 17 years, I think you spent roughly $15,000,000,000 buying back stock. That's double today's stock market value. And the value of the company has tracked downward pretty closely. Each dollar spent to buy back a share has been a dollar reduction in market value. What's the justification to continue buying back if you can't time this prices?
And if this company is declining on a dollar for dollar basis, why not pay more in a dividend? Or alternatively, find something productive to reinvest in the company.
Thank you for the question. It's a really good point. We have a principle about returning excess cash to shareholders, and we have held true to that principle for a very long time. So to your first point, our first call of cash is absolutely to invest in our business to the degree we believe we will get appropriate returns for our shareholders. And so every year, we've averaged capital spend between $500,000,000 took it up to $750,000,000 last year.
And so we definitely are focused on investing in our business for growth. Above and beyond that, we think it's important to give cash back to our shareholders. We go to the dividend for sure because it's a really important component of distributing our excess cash back. And we've been pretty consistent about increasing our dividend. So our dividend per share has gone from $0.32 actually $0.02 when I started as a company 14 years ago, all the way to $0.94 per share.
So there's a very strong commitment to giving that more assured piece of cash back to our shareholders every year. With regard to our share repurchase program, if you zoom out and look at it over the long run, you are correct in your fact that we've spent about $15,500,000,000 over the last decade or so repurchasing shares at an average price of $22 per share. We actually believe that that's a pretty good value for our shareholders. As recently as last January, our stock was trading at $45 in that range. And so from that perspective of history to have bought back that many shares at $22 we think is a pretty good value.
Now against today's more depressed stock price, we're not happy with that, but we very much view today's stock price as an aberration. And clearly, for Art's remarks and Bob's remarks, we're very focused on getting back on track and getting that stock price back up. So when judged in hindsight after we get out of this trough, we think we will be judged fairly on having repurchased that much on behalf of our shareholders at that average price of $22 Thank you.
Are there any other questions?
I'll try again, just to keep the flow going. I'd like to return a little bit to the online experience and ask a more specific question. You mentioned the 3rd party engagement abroad. Have you thought of or is it even feasible to engage Amazon in marketing products? So again, I don't despite Julie's comments on forward looking statements, I want to make sure that I'm careful here.
To not be considering Amazon and others would be, in my view, delusional and around the customers' behavior. And so what I would say is that we are always considering all of the opportunities beyond our traditional mix of channels and stores and looking at all of those. And Amazon is certainly one and there are others out there as well. I believe the statistic this year is that Amazon is will account for 1 third of all e commerce in the United States. And you've probably read the articles that say that Amazon will by 2017 be the largest apparel retailer in the United States.
And so not therefore recognize that that is part of how customers behave, I think 41,000,000 Americans are Amazon Prime numbers. To not acknowledge that and be thinking about what does that mean to our strategy would be to have our head in the sand and we do not have our head in the sand.
Are there any other questions?
Okay. I'm much more of a financial oriented person and not fashion oriented at all. But I can tell you the products that I have a passion for can be made in the United States and I view things that can be bought online, imported from Asia as very commodity like. The Gap historically, I still own sweaters from my college days that were produced in the United States for Gap that I hang on to because I associate positively with them. I almost couldn't care less about a product that has been come in from Asia and I bought out of necessity.
As you go to try and differentiate yourself, is there a way to move backwards? Or I'm sure you're all more brand oriented than I am, but there are companies who are building positive rapport with their clients by producing in the United States or taking a green tact or doing something to differentiate themselves other than just flashy websites and low cost from Asia?
Let me take this one on. It's really something that's close to me. And I'm glad you opened the aperture on the question right at the end around Shareholders' volume. Sure. Sorry?
You like him to identify himself, Bobby? Okay. Yes. Sorry. I'm Art Peck.
I'm Paul Schwarzbach. I live here in San Francisco. I'm a shareholder myself. My wife is a shareholder myself and I manage money for a number of high wealth, high wealth individuals.
Thanks Paul for the question. So let me tease apart because you did open the aperture in the end around other aspects of brand differentiation, not just the made in America piece, but let me take that on first. It is something that we continue to look at. The simple reality today for a company our size is that the scale of domestic garment production, apparel production in the United States is such that it's not a meaningful percentage right now. So we have looked across our brands and done various programs where we have produced some things.
Oftentimes, it will consume an entire vendor. We've also looked to see is there a way as some other companies have done to encourage the growth of domestic production that is efficient and effective and at scale. Something we look at continuously, some of our customers quite honestly care about it. Many customers don't at the end of the day, but it's certainly on our mind. And it's on our mind not just because of the brand differentiation, but with North America as our largest market, sourcing capacity that is proximate to this market and therefore fast, all things equal with the responsive product capabilities we're building, that is a good thing.
So with American, it is also in this area as well, Caribbean, basement, etcetera, where proximate sourcing is an asset we believe. On the second aspect, which is the broader range of differentiation opportunities, one of the things that I'm passionate about and Andy as an example who runs Banana Republic will testify to this is making sure that the voice of how we do business shows up in our brands. We have incredible progress to our PACE program and made a commitment earlier this year to bring 1,000,000 women by 2020 through the PACE program. That is something that customers value that is not showing up in the way it has. Environmental initiatives that we have, we've made immense progress on our on energy.
We were just talking about this in one of the committee meetings, energy usage, etcetera. And so this year, having talked about this for years, I was tired of talking and I simply said we are going to have these things show up because they matter to our consumers. And we're now in the process of building this into our brand voice across the entire portfolio. And again, at its core, and I appreciate your fashion sensitivity or lack thereof or sensibility, but
at its core, if we
don't have products that customers emotionally connect with, that she puts on and feels cute, that he feels is great about him, that are wonderful on the kids, we won't win. But I believe we should be pulling more aggressively every element of differentiation in our brand and our brand voices. And this is part of it for sure. Julie?
Are there any other questions? Seeing no further questions, on behalf of management and the Board of Directors, thank you all for coming today. The meeting is now concluded.