President of Investor Relations.
Good afternoon, everyone. Welcome to Gap Inc. Q2 2013 earnings conference call. For those of you participating in the webcast, please turn to slide 2. I'd like to remind you that the information made available on this webcast and conference call contains forward looking statements.
For information on factors that could cause our actual results to differ materially from the forward looking statements as well as reconciliations or descriptions of measures we are required to reconcile to GAAP Financial Measures, please refer to today's press release as well as our most recent Annual Report on Form 10 ks and our most recent Quarterly Report on Form 10 Q, all of which are available on gapinc.com. These forward looking statements are based on information as of August 22, 2013, and we assume no obligation to publicly update or revise our forward looking statements. Joining us on the call today are Chairman and CEO, Glenn Murphy and Executive Vice President and CFO, Sabrina Simmons. Now I'd like to turn the call over to Glenn.
Thank you, Katrina, and good afternoon, everybody. Sabrina will come on the call in a few minutes and give you the details of the company's financial performance in the Q2. Before we get to that, I just got a couple of comments on Q2, and then I want to talk a little bit about the second half and then of course you'll hear from Sabrina and we'll take all your questions. On Q2, the company had very good sales results on a number of different fronts. We felt good about the comp at a +5.
That's a 2 year plus 9, which is good performance. And it's a 2nd quarter in which we've achieved an internal goal of comp to comp. So I think that that's good performance for Gap Inc. In the 2nd quarter. Now unlike a lot of other retailers and brands, we continue to give monthly sales that we've been giving them in the 6 years that I've been here.
We like it. We think it's transparent. That's not a commitment we're going to do it forever in a day, but for now we think that makes absolute sense. But I do want to say to everybody on the call that with the consumer environment we're dealing with and the changes in consumer behavior, there's always going to be lumpiness from 1 month to another. So I think I've said this before, but it's worth reiterating.
We report our sales monthly, but we manage our business quarterly. So we come out of the quarter, regardless of how it may flow by month, we feel very good that the company achieved a 5 comp for the 2nd quarter. That's very good performance. I was also really happy with our total sales. Now we had an 8% reported total sales, but if you FX adjust that number, it's a +10, which means Gap Inc.
Had about 5 points of spread between comp and total sales in the Q2, which is also very good performance. And lastly, I want to highlight, like I did on Q1, our online business grew by 27%. Just coincidentally happens to be the same number as it was in Q1. So also that very important channel where we're putting investments where we believe we have a very strong share and we differentiate ourselves had a nice growth rate in the Q2. Now just moving to the bottom line, it's nice to be able to leverage our business and set up an economic model in which you can do that with.
So to get 160 basis point improvement on our operating margin was nice to see. That gave us a 25% increase in profit and a 31% increase in earnings per share. So all in all, when you look at those numbers, I would say that Gap Inc. Had a strong Q2. Now I'd like to give all the analysts and investors updates on growth.
I did that extensively in the Q1 call. Everything is on track when it comes to China Athleta, our franchise business. Our growth initiatives continue to do well. What I do want to add though is that Old Navy is open in Mainland China. It will be in Shanghai and it will open in the spring of 2014.
Gap opened in Taipei, which will be our 1st store in Taiwan in the spring of 2014. One thing I want to highlight in the second half where there's noticeable change and some evolution that's taking place across all of our brands and that's in the marketing area. That's in two fronts. It's in messaging and it's in the use of different mediums. From a messaging perspective, Old Navy, their creative platform which they've been on for the better part of 2 or 3 years is going to change.
So Old Navy's positioning is absolutely consistent and is unique in the marketplace, which is delivering fashion essentials for the family. But after a couple of years, it's always good for you to reassess the platform and the voice of the brand. That's what the new team has done. And I feel very good about the second half on how we're going to continue to take this brand in a value sector and differentiate ourselves. But in Republic, if you've seen Republic, if you've seen the ESA campaign that is out right now and the collaboration we have, I think it's brand new creative and that's the look and the feel that all of our customers are going to see in the back half.
And I think it just needed a change. It needed to be freshened up. It needed to look a little more relevant. And I think that's what you're seeing in the ESA creative execution and you'll see that kind of execution that kind of look and feel in the rest of the back half. And lastly Athleta, which has been a very strong success for the business and we love the marketing behind it, which is power to the she and that's what the brand platform is and that's not changing.
But it's going to evolve its look a little bit. We want the brand to be a little broader and you're going to see some of that more around the holiday season. On the medium front, two things to report. 1 that Gap is going back to television in the fall. Many times over the last 4 or 5 years, we've been asked if Gap would go back on television.
I understand the question because of the heritage and the association with Gap brand and great TV commercials. I think the criteria for me has been pretty consistent. What's the strategy behind it? Do we feel the messaging is strong and unique? Do we believe the product is absolutely the right product in our stores in order to go out and spend the money on television, bring new people in?
So Gap Brand has been able to check off all those boxes. So you will see Gap Brand go back to television this fall. Don't ask me about holiday. I'll just try to get ahead of the question. I don't know the answer yet.
Again, we got to go through the criteria and make sure everything's right. And if everything's right, then we will consider television for holiday, but that has not been decided yet. And the other thing I want to mention is that we are really making a further shift in the back half of twenty thirteen to try to acquire more new customers. The last couple of years, I think a lot of our investment in the mediums we've used have been to strengthen our strengths with existing customers at the same time as trying to speak to our lapsed customers. Now there's always marketing.
If you put money in your windows, you're always talking to some new customers. But it's been mostly broadcast, broadcast media. And I think that the business now with so many more tools and so many more choices for a company like us, you're going to see us put more money towards person casting and really try to speak to specific group of customers that we believe should be experiencing the brand and should be in our stores and should be on our online site. And that's across all 6 of our brands. So definitely that's going to be a focus in the second half because it's important for a business like ours in order to continue to move the business forward to have the right balance on loyal customers, lapsed customers and new customers.
Let me close this portion of the call off by saying that all of our product for fall and holiday is bought. From my perspective, our design and merchandising teams have done a very good job. Like any business you learned from the previous year, you have to make adjustments, you have make sure that you're putting the focus and the energy behind where you can dominate. That's why for years we've been talking about a comp is an outcome. That's why each one of our brands as they build up their assortment, they know what categories they're going to dominate on, where they're going to differentiate themselves.
And that's where the focus is. And look, we've been doing this for years. I just think this year coming into fall and holiday is just another year where the team has moved the needle forward. So I like what the design and merchandising teams have done and now it's over to execution. So it's over to our marketers, I talked about earlier, our inventory management team, our store leaders, our online teams to really make sure they take the product that's been designed and execute it to the highest level possible to do what?
Well, of course, to win. To win more and more customers and to gain market share. That's the business we're in. I think we've done that in the first half of this year. If you look at so first half was a market share gaining first half.
And it's certainly our goal sitting here today to replicate market share gains in the second half. With that said, let me pass the call over to Sabrina and then I'll answer any of your questions after she's finished their comments. Thank you.
Thank you, Glenn. Good afternoon, everyone. We're pleased with our 2nd quarter performance as we again met our goals, which include growing sales with healthy merchandise margins, leveraging expenses, expanding operating margin and growing earnings per share. Please turn to slide 3 for our earnings recap. Our earnings per share for the quarter were $0.64 versus $0.49 last year.
Here are some additional Q2 highlights. Net sales were up 8% with comparable sales up 5%. Gross margin expanded by 60 basis points to 40.5%. Operating margin expanded by 160 basis points to 13.5%. Basis points to 13.5%.
Net earnings were up $60,000,000 or 25%. And with S and P's upgrade of our credit rating earlier in the quarter, we are now an investment grade credit with all 3 major agencies. Turning to Slide 4, sales performance. 2nd quarter total sales were 3,900,000,000 dollars The translation of foreign revenues into dollars impacted our reported net sales. For the Q2, our net sales were negatively impacted by about $56,000,000 primarily due to the weakening of the yen.
On a constant currency basis, our revenues were up 10%. Total sales and comps by division are listed in our press release. Turning to Slide 5, gross profit. Gross profit dollars grew by 10% to $1,600,000,000 and gross margin was up 60 basis points to 40.5%. Our merchandise margins were down 30 basis points and rent and occupancy leveraged 90 basis points.
Please turn to Slide 6 for operating expenses. 2nd quarter total operating expenses were $1,000,000,000 up $44,000,000 from the prior year. Marketing expenses were up $1,000,000 to last year at $148,000,000 As a percent of sales, total operating expenses leveraged by 100 basis points. Delivering on our goals of sales growth and expense leverage resulted in net earnings of $303,000,000 up 25 percent to last year. Moving on to the balance sheet on slide 7.
Inventory dollars per store were up 6%, broadly in line with our pump sales growth. Year to date, we generated free cash flow of $542,000,000 and we ended the 2nd quarter with about $1,900,000,000 in cash. During the quarter, we distributed $97,000,000 through share repurchases and dividends. Our quarter end share count was 468,000,000. Though our share repurchases within the quarter were relatively modest, we're pleased to announce our intention to increase our dividend beginning in Q3 from $0.60 to $0.80 per share annually.
This represents a 60% increase over 20 twelve's dividend of $0.50 per share. Please turn to slide 8 for capital expenditures and store count. Year to date capital expenditures were 315,000,000 With regard to company operated stores, we ended the quarter with 3,106 stores. Square footage was flat to the Q2 2012. Store count and square footage by division are listed in our press release.
And now I'd like to share our outlook for the rest of the year. Please turn to slide 9. Given our progress in the first half of the year, we are raising our estimate for full year earnings per share from $2.52 to $2.60 to $2.57 to $2.65 At the midpoint, this implies a growth rate of 12% for the year. However, as we've called out, given the 53rd week in 2012, the cadence of quarterly earnings growth is uneven with growth weighted toward the first half of the year. There are 2 important considerations for the remainder of the year.
First, foreign exchange and second, last year's 53rd in the resulting calendar shift this year. Beginning with foreign exchange. Our full year earnings guidance contemplates some of the impact of foreign currency headwinds, specifically the yen, which has depreciated by about 20%. This depreciation negatively impacts our reported sales and earnings. For example, our first half sales were negatively impacted by over $100,000,000 To be helpful, we reported sales in the Asia region last year of about $1,300,000,000 the vast majority of which were yen based.
Simply applying the 20% depreciation to this amount would equate to a meaningful headwind to revenue of over $250,000,000 for the full year. Now turning to the calendar impact. As we've noted several times, the Q4 this year has one less selling week than the Q4 last year. Additionally, the week that's dropped from the Q4 is a large selling week. Therefore, just as the first quarter benefited from the calendar shift, the Q4 is expected to be negatively impacted by an amount that is larger than the benefit we saw in Q1 given the volume of sales for holiday is larger than the volume during the spring.
Keep in mind that both foreign exchange and the calendar shift impact the spread between total sales growth and comp sales. Given these impacts, we expect spread for the full year of about 1 percentage point, Because the spread between total sales growth and comp sales in the first half was 4 percentage points, we therefore expect the spread in the back half to be far less than the first half. Aside from these two important callouts, the following guidance metrics remain substantially unchanged. Operating margin about 13% square footage up about 1%. Regarding company operated stores net of repositions, we plan to open about 160 and close about 80.
Store openings are weighted toward Gap China, Old Navy Japan, Athleta and Global Outlets, while store closures are weighted toward GAAP North America. We expect capital expenditures to be about $675,000,000 and depreciation and amortization to be about $475,000,000 We expect our full year effective tax rate to be about 39%. We expect Q3 inventory dollars per store to be up in the mid single digits. In closing, we're pleased with how we executed against our strategies during the first half of the year. And of course, we're now focused on delivering on our goals for the remainder of the year.
Thank you. And now I'll turn it back over to Katrina. Thank you, Sabrina.
That concludes our prepared remarks. We'll now open up the call to questions.
Yes. Thank you. And we'll go first to Kimberly Greenberger with Morgan Stanley.
Thank you so much. Glenn, the entire team has done just such a terrific job in what appears to be a very intense and competitive retail environment. I don't know if you've had a chance to sort of step back and just look at what's going on in your business relative to everyone else. But could you just touch on some of the key operational and executional improvements that you guys have implemented over the last 1 or 2 years to stabilize and improve the performance? And are you seeing any kind of encouraging signs in the traffic trends in your stores that's sort of potentially helping the comp trend?
Let me start with the first question. We I'd say what we've been doing for the last 3 or 4 years is to balance out the company's portfolio. So when the new management team started together, one of the comments that I think we made internally and possibly externally is we got hand we've taken over a very nice hand. We just got to make sure we play it right now. Having a big business in the value sector is that's important.
That's Old Navy. And we have a brand in the value sector. So that's a great opportunity and a point of differentiation for us. Obviously Gap, iconic, more mid market Banana Republic, a little more of let's call it affordable luxury versatility and in what I would call versatile work. So again all three brands being different from one another.
One of the things I've tried to do since I've been here is make sure that while there's always a little bit of internal dynamic tension between the brands and let's face it, apparel is only so big. So there's going to be a little bit where they intersect in certain categories. But try to make sure there's enough differentiation between the brands. I think that helps us. And then as you know, for the last number of years, we've been pushing our online business, putting investments behind that because we know that's the future.
And we've always had a great platform. We've just been building that platform and evidence of that is another great quarter of a 27% growth. And that's good not only for where the customer is, but it's great for return on capital, great for return on sales. And simultaneously, we've been pushing the outlet business. So good opportunity where 2 of our brands, whether established brands, but there's a you can have a value derivative of those brands.
We put a lot of money and a lot of square footage has shifted into a business. And lastly, as we've gained confidence and made investments in our international markets driven by our franchise business, which is contributing nicely, it still has a long way to go in terms of its size, a lot more Banana Republics, a lot gaps in countries we're already in. Next year will be Old Navy's chance to go in the franchise markets. And that's also a business that has a very nice return on sales, return on capital. So I think the biggest thing we've done is to balance out the portfolio.
Now, although they're not significant contributors to this particular quarter, then you have the new brand play between Athleta, Intermix and Piperline. So I think one of our advantages and some people choose to have a singular brand and that's where they focus and that may make sense for them. For us given how fragmented the apparel business is where the leading market share player could have something like a mid to high single digit going coming to the market with different brands and unique brands and multiple brands into different channels and into different geographies, obviously, as we execute and we have a long, long way to go, is paying off as evidenced by this quarter. Now traffic, I think we've been stating on our monthly calls that traffic has been slightly negative. Maybe some people reporting in this quarter had traffic that was maybe better than that.
Certainly, it seems like some had traffic that was worse than that. We would love to be able to continue to find the innovative and creative solutions that could get us to positive traffic. That's certainly not a goal we're giving up on because our view is that somebody is always delivering a positive comp, somebody is always delivering positive traffic. That's how we have to believe it that in spite of our slightly negative traffic from in the 1st and second quarter that we strongly believe there's positive traffic to be had. But then holistically when you add that up with our online business and put it together, it's a different picture.
So we're finding a way to drive UPTs, to drive conversion, to drive average transaction in this environment where in spite of the innovative and creative marketing we may be putting into place, we're seeing slightly negative traffic. But we're not giving up on that. We have great real estate because we've been around a long time. We've been repositioning our real estate over the last 5 years. So there's no excuse on the quality of the real estate of the business.
And we've certainly put capital into our stores. So now it's up to the marketers and the store operators to turn that investment into positive traffic.
Terrific. Good luck here in the second half.
Your next question comes from Lorraine Hutchinson with Bank of America Merrill Lynch.
Thank you. Good afternoon. Sabrina, I
just wanted to follow-up on the decline in
year?
Yes. So the merchandise margin was down very slightly. Fortunately, as we've been calling out that a big driver to our gross margin opportunities going forward is going to be in rent and occupancy. So very much as we'd expect, Lorraine, we're driving that expansion through rent and occupancy leverage on the positive comp. We said that past Q1, we were not going to have any AUC tailwinds any longer.
And we just wanted to deliver our merchandise margins and our comp or our comp with healthy merchandise margins, we feel like in this environment, we very much achieved that in Q2. And so we'll always be looking to do well on the merchandise margin line, but a lot of our continuation of rent and occupancy leverage on a positive comp. Thank you.
We'll go next to Lindsay Drucker Mann with Goldman Sachs.
Thanks. Good evening, everyone. I was hoping, Glenn, on the last conference call, I think you talked about feeling better vibes from the consumer and the sense that things are starting to pick up. I was curious if you still have the same point of view and whether you can give us a sense on how August started and back to school started at this point? Thanks.
Well, I think you know us well enough. We're not going to comment on August. And when it comes to back to school, it's obviously a moment in time, but it's not the holiday for our portfolio brands that may be for other retailers that you cover. Old Navy is really the only brand that participates in back to school. So while it's important and we certainly want to go out and gain market share and use it as a way to bring new customers into our stores, it's not something we're as dependent on as others.
In terms of the customer, my views haven't changed that all I can do is look at it from a high level and go, it seems that there are positive signs on unemployment in this country and in some other countries because we're a global player. It seems like certain wealth creation whether it's in people's equity in their homes or whether it's people who may have be fortunate enough to be in certain stock markets that that's creating wealth beyond what people would have had in 2012. And other like anybody, we're doing our research. We're talking to customers all day long. We're trying to manage people's we're trying to understand people's expectation and where consumer sentiment is.
But as I tried to say in the opening comments, we figured out as a management team in 2,008 that we were dealing with a new paradigm that somebody coined back then as the new normal. And in the new normal, it's not uncommon for customers for very little reason or any reason to go into hibernation, whether that's for a month or whether that's for a quarter, that's just something that we've become acclimatized to. And our team, as I said earlier to the question that Kimberly posed, I look at it this way that even if there was a period of time in 2009 or 2012 where for reasons that are out of our control that customers may go into a period of hibernation. Our view is somebody is always winning and somebody is always positive comping, positive traffic comping, gaining market share. So our position to our team and one that I know Spree and I embrace is that should be us.
And what are we doing in spite of a period that the customers may be in another category or delaying purchases, whatever they may choose to do because of this new paradigm we operate in, we still have to look at and go there's business to be had, There's traffic to be taken. There's market share to be gained and that's the attitude we have to take. So we're used to it. Would I prefer was like 2,007? Sure.
Would I prefer things were like the 1990s or part of the 1990s were also attractive as a retailer. This is the customer we have. So our attitude is let's just make the best of it and let's do like we did in Q2, which is get a 5 comp, get total sales of 10% and have a quarter that produced the kind of leverage that we had and let's go and gain market share. We have a good portfolio of brands. There's no reason that shouldn't be us.
We'll go next to Janet Kloppenburg with JJK Research.
Good afternoon, everyone. I wondered about your comments with respect to gross margin and it seemed to rise. I was wondering if that implied that you were less optimistic about full price selling opportunity in the second half of the year. And Glenn, I wondered if you talk about the denim category you've invested in a major way at both Gap and Old Navy. A lot of people are talking about a comparison to colored denim from last year.
And I'm wondering if you think that could be a challenge this year? Thank you.
Hi, Janet. I will start with the first part of your question. And my comment to Lorraine's question was in no way meant to imply that we had changed our outlook on reg selling. In fact, in the second quarter, we improved in terms of how much we sold at reg and promo. So we sold less at markdown, more at reg and promo.
So we're on a really good path with good momentum there. I think our opportunity really lies in continuing to be quite surgical about our promotions and making sure that we are getting the highest yield we can and not giving away too much as we do what our customers value and want, which is some promotional activity, but continuing to manage those really well. But we did very well on the reg selling bucket. And of course, that remains an opportunity, but I think we have some good momentum there. Thank you.
And then as far as denim is concerned, it's a dominate category for both Gap and for Old Navy. And we're not we would never abandon color. It's part of the DNA of both brands, maybe a little bit more in Gap than it is at Old Navy. You're still going to see color. There's color still in our stores this fall.
There'll still be color denim in our stores in holiday. Is it less pronounced? It's less pronounced. I mean, I think our view is that trying to climb the mountain a second year in a row when a lot of people came in last year who bought a lot of colored denim from us, I think that there's still opportunity to sell more to them in the next 6 months. But the move we've made in either the marketing campaign for Gap of Back to Blue or the current marketing campaign for Old Navy is we believe in going back to indigo with different treatments.
Some cases it's coated denim. Grays are very big for us. We're really pleased with the business we're doing in that category. So between Gap outlet and Old Navy and Gap, I think we've made some really good decisions to not move away from color, but to maybe marginalize a little bit versus what we had last year in the back half and then add something new and fresh and try to make sure not only do we have the right different kinds of indigo interpretation, but we have amazing fit that the inventory is done right and that we count on people online in the store and our marketing team to tell that story. And also we're pleased with how the marketing looks.
We're certainly pleased with how the denim is showing up in the store. And this is not just 1 month. This is what you see now is the foundational shift that we believe we had to make that you'll see in our stores. Not of course, there'll be new product coming in, but foundationally the shift you're seeing is going to last us from now until the holiday.
Thank you.
We'll go next to Matt McClintock with Barclays.
Hi, yes. Good afternoon. Glenn, I thought it was interesting to comment you talked about going after a new customer profile for all of the brands. And I was just wondering if you could elaborate that on maybe give us some more color on what is the profile of the new customer versus your existing customer? And what were some of the limitations that prevented you from perhaps going after this customer before?
Thank you.
Yes. Maybe in my opening comments, I may have misspoken what the message was that the customer profile has not changed whatsoever, neither has the position of the brands or in many cases the platform of the marketing. Our view is that if you just use Old Navy for a second and say that we have a customer profile, there's a targeted customer, we understand that customer, who she is, who he is, what their families are. In a business like Old Navy, if you just target that customer exactly as a percentage of the customers that are available for every X percent of customers, we may only have 5% or 10% of them. And within that group, we look at it and go, how are we holding on to our loyal customers, which I think disproportionately that's been our obsession coming out of 2,008, 2,009 back to I feel like I'm a historian today, back to giving you a history lesson.
But coming out of that period of time, we really focused on holding on to the customers we had. And then the last year, maybe 18 months, you've seen some of the investments and some of the mediums we've been using to make sure that we can address lapsed customers. And this is where big data is important because now we can look at information and look at tendencies of customers who are loyal and what makes them lapsed and try to get to them and speak to them and incent them in some cases before they become a lapsed customer to stay loyal with us. We're always saying about new customers, Matt, is there's a lot of customers in our targeted profile who really believe it or not either have not tried us and have not come into our stores, whether it's online or into our stores or they were with us a number of years ago. And with the changes we've made to our assortment to our product especially Gap and Old Navy that we need to go out and speak to them.
And there's so many more tools now and so many more ways to target specific group of new customers to get them to experience your brand that were not available to us 5 years ago. And that's where we put a lot of money in the last 5 years is not only in understanding customer files, but trying to actually get bigger files that can talk to similar profiles, but actually because these are customers who have no history with us, let's say in the last 2 to 3 years. So that is to me a missed opportunity and our marketing teams and our brand presidents know that. The last thing you want to do is to gain a lot of share in a big holiday like July 4 and go out and have the right product, the right messaging and gain share. And then the very next day after a big holiday like that go and talk to the exact same customers.
I mean they've been into your store. They've gone online now. You're not going to get people to unnaturally frequent a brand. So share of wallet is important, but we got to get to new customers. I think what you're going to see in the back half is no incremental marketing necessarily, but a shift in some of the marketing to speak to new customers.
And that's one of the reasons Gap is going back on television.
Thank you, Glenn. That's very helpful.
We'll go next to Betty Chen with Wedbush Securities.
Thank you. Good afternoon. Congrats on
the nice quarter. I was wondering Sabrina, the SG and A number leveraged very nicely in the Q2. Can you remind us of some of the opportunities? Or is it mainly coming from leverage on the top line? And whether some of those opportunities can continue into the back half?
And how we should think about that line item? Thank you.
Yes. We did do very nicely on SG and A and we continue to be very disciplined on that line item. I would say the 2 primary drivers helping us in the quarter was all of our store related expenses did very nicely and were well managed by the teams and leveraged nicely. And then as well lapping last year's big investments in marketing where we're sort of on a nominal dollar basis, you can see holding on a nominal dollar basis, you can see holding those marketing dollars being up only $1,000,000 That's providing some nice leverage as well. So those are probably the 2 biggest buckets.
As Glenn sort of alluded to, in the back half, we'll continue to be disciplined certainly. Marketing, because we invested so much last year, we certainly don't intend to divest, but we're probably not going to increase those investments a lot. So they should continue to leverage. The only thing I'll call out, of course, is that in the Q4, because of that lack of the 53rd week, of course, leveraging is going to be different in the Q4 than it is in the other quarters. Thank you.
We'll go next to John Moores with Bank of Montreal Capital.
Thanks. My congratulations to everybody in a fairly challenging environment for some. Glenn, I think a question for you about one of the initiatives that I think went live last quarter, the reserve in store initiative. How is that going? What are you seeing from it?
What kind of benefits are impacting the business maybe in of Citrix thinking about the UPT, etcetera? Thanks. You're right. We launched it about 8 weeks ago. It's in a total of 40 stores divided into 2 cities and into 2 brands.
So that's in Chicago and San Francisco and it's Capp brand of Banana Republic. And just to take a step back, it's just it's another point along the journey for us when it comes to omnichannel. So we were early in the ship from store, which is more than a year old. We then obviously this is all about dealing with the customer first. We then realized the ship from store was helpful.
We then realized the power of find in store, which is making sure a customer before they make that first decision to start a journey can go on our site, hit the Find in Store button on a particular product and find out the availability of that product within a store within 25 miles of where they currently are. That's a tool I think we still need to invest in and educate people on. But we know one of the biggest challenges everybody in retail faces, maybe a little more pronounced in apparel than maybe if you're in the drugstore business, is when they see something that you can get them excited about, whether it's through the marketing you're doing out of home or in magazines or windows in your store or something online, of course, on their smartphone is will it be available? I mean, think about that when a new collection launches or something like a collaboration with ESA, trying to find out if it's available is that's that battle that customers have with themselves because that's the nature of this industry. It could be gone very quickly.
So find in store was very important. Find in store then gave birth to reserve in store. So to answer your question, John, I just want to just give you a little bit of the path we've been on. We've been really happy with it. It's unique.
It's different than pickup in store. And I think that we're learning a lot of lessons, but in the we've learned a lot of lessons in the last 8 weeks. The one I can share with you that's most interesting to me and there's a dozen little anecdotes like this, but the percentage of people who are reserving in off hours has been really interesting to me. And I didn't see that coming. I knew that would be a feature we could talk about, but just imagine now that basically the marketing message coming forward as part of the test is to inform us as we roll this out to more markets in the fall is how exactly do you position us?
Why would I want to reserve something in store? But with the crazy world we all live in and the hours people have to put forward their business life, their personal life, the ability to go on at 10 or 11 or 6 in the morning and see something that really is something you want and to reserve it and then be able to get a text from us when the store opens, I think that's proven to be a much bigger draw than I thought it was going to be. So I think as we roll this out, that could be part of the marketing as basically our store is always open. We can always find out from us. And so place a reservation and first thing in the morning, our team fulfills that.
So it's that's one of the lessons, one of many lessons that you'll see us apply as we make the decision to roll this out further in the fall to more than just 2 cities. Very helpful. Thanks.
We'll go next to Dorothee Lachner with Topeka Capital Markets.
Thanks. Good afternoon, everyone, and my congratulations as well. Maybe tagging on to that last question, Glenn, I wondered if you could talk a little bit about the split between e commerce and stores or the lack thereof. There's been a lot of talk I think on other calls where perhaps results have been weaker about online only retailers taking market share? And how many stores are you going to close?
And kind of the conversation moving towards is the stores business going away. And clearly you're ahead of the pack anyway because you closed so many stores over the last decade, you really cleaned up the stores portfolio. So how are you feeling now about the omni channel business and the power of having stores versus or with the online capability that you have as well?
Well, yes, just one point before. We've only started closing stores 5 years ago. We probably shouldn't have opened stores in the 1st 5 years of the decade you're referring to, but the store closure program really started in 2,008. We'll have it completed by the end of this year. We've said publicly, there's always going to be maintenance closures you got to do or repositions.
If you have a big fleet, you heard Sabrina talk earlier, just under 3,200 stores, big fleet like that. There's going to be more than onesies and twosies. But you're right, we got ahead of the pack because that was one of our strategic initiatives in 2,007. I don't know, I don't we're we guys we see it in a completely different way. I may be wrong with this number, but if nothing else, it's directionally correct.
In the last quarter, I think Amazon's number, who are pure play, were up 22%. And we've been up 27% the last two quarters. So our view is that these I think it all depends on people's definition of the omni channel. For us, the omni channel definition is that the world becomes seamless. And it's totally transparent.
It's all about serving the customer. So the customer, to John's question, is in Chicago and wants to reserve something 11 o'clock at night and get a text from our team at 9:05 after we open at 9 saying it's here, Dorothy and it's waiting for you, and we're going to hold it here for 24 hours, that makes the store incredibly valuable. The other thing I want to mention to you that it's a stat I gave out recently is in spite of the fact that more and more customers are experiencing our brand online first, that number should hit about 50% this year where the smartphone, your tablet is the 1st place you go to experience the brand. The one number that has not changed is that this is 6 years running now, 80% of our customers actually want to go try on the product in a store. And even though the smartphone, tablet and the experiencing virtually and online of the brand and being able to lose yourself and do your own discovery and shopping online and that's why investments online are very important, the store matters in our category.
So what better advantage do we have than to build a transparent seamless environment, as I mentioned to John, to start with ship in store, find in store, reserve in store, and as I'll talk more in September as I attend a conference in New York, is about the ability now to personalize that experience and be very cognizant of the power of a physical bricks and mortar location and an offline and bringing those 2 together. I think that's who's going to win in the long term, those who can do that in our category.
And just to underscore Glenn's point, Dorothy, when we report comp, we said that online generally contributes about 2 points of the comp. So with our 5 comp in the quarter, certainly you can see that our stores underlying have a very healthy comp.
Great. Thanks and good luck going forward.
And we'll go next to Jennifer Davis with Lazard Capital Markets.
Hey, guys. Congratulations on a great quarter, especially in this challenging environment. Sabrina, first a quick clarification. Did I understand this correctly? Did you say that the impact of the calendar shift on 4th quarter EPS would be greater than the $0.08 benefit that you saw in the Q1?
And then my question is, how much fabric or what percent of fabric are you currently platforming? And how much has that increased this year? And how much more room do you have to go with that? Thanks.
Great. So yes, you listened really well, Jennifer, as usual. So that's exactly right that the negative impact to the Q4 is larger than the $0.08 that the Q1 benefited from. And then I'll let Glenn take the fabric platforming.
Haven't had a chance yet today to use our analogy with innings, but I would say that on a fabric platform and the benefit of that will really be felt in the Q1 of 2014. But we likely came from an environment where earlier this year, we're probably in the 2nd inning. We get into the second half. In the 3rd inning, I think we'll catapult ourselves to the 6th or 7th inning in the first half of twenty fourteen. And then the target we have, what percent of our total business will be fabric in a fabric platform environment into a toolbox.
And part of this started with fabric reductions and eliminations and consolidation. That was very important. Once you get that done, and that's the work that's been going on for the last 6 months, then you get into a platformed environment. So we'll be a little bit of progress in the back half this year, but we'll have it all done by the second half of twenty fourteen.
All right, great. Thanks and best of luck.
We'll go next to Brian Tuncay with JPMorgan.
Great. Thanks. One for Glenn and maybe one for Sabrina. I guess Glenn as you hindsight with Stephane on the Old Navy business for the first half, just curious from a category or execution perspective, what were you most happy with and where do you still think Old Navy has the biggest opportunities as you guys work together? And then maybe for Sabrina, it looked like you only bought back, I think, dollars 27,000,000 worth of stock in the quarter and you didn't raise the dividend after the close.
So just curious, should we be thinking about you're going to be increasing the dividend faster than you buy back stock? Or just any thoughts on the capital allocation?
On Stephane, what I can say about him is that, he's harder on himself than I am on him. Look, a lot of the impact Brian that Stephane is making on the business will more be felt in the back half. Just in fairness to him, he started in October of last year. So no, we didn't have him necessarily jump right into the business day 1. So his biggest impact is yet to come.
But I would say, building a great team, which he's done, which is 75%, 80% of people in company already, but putting the team together, getting everybody very focused has been very important. The fact that he really believes and loves what this brand stands for, because sometimes you bring new people in, in spite of how you may interview them and what they may say, you get them in the seat for 30, 60, 90 days and some people may have different opinions. I love the fact that he's been consistent since the 1st day he's here of what this brand stands for. Now he's evolved it. He's polished it up.
But I think he's gotten really good clarity in the business about what's important for him and how Old Navy is going to go out and win. And you can't debate the fact that he's had a pretty good execution with the product that he inherited, which was good product. I mean, the team before him did a very nice job. But you still have to have somebody who has to take that. As I said earlier in my opening comments about the second half of this year, you still have to have somebody who stewards that through.
And first second quarter comp of 6% is good performance. So I think that that's where he probably had his 1st initial commercial impact in the business. So I think that's very good. And he found the right balance. I like the fact that he didn't unnecessarily chase any given month.
As I said, people look at our business internally as we obviously have the long, long view that Sabrina and I have, which is measured in years, but our brand presidents look at their business on any given quarter. So he didn't unnecessarily chase 1 month versus another. He did make the right decision and he produced a very good quarter. So I'm with that all said, I'm excited about the second half for him because his view of Old Navy, his view of fashion apparel, his view of how he's going to bring that brand and continue to build on it and build on it and win, I think some of that will be felt in the second half.
Yes. And then with regard to, I'll call it, cash distributions broadly, none of our philosophy has really changed, Brian. So we're big believers in distributing our excess cash to shareholders. And we will continue to use both the dividend as well as continued share repurchases. With regard to share repurchases, the stocks actually just moved up.
We're pleased with that quite a bit year to date and even within the quarter. And we tend to be opportunistic. So we just haven't caught that wave at the right moment. But there's been plenty of years where we do a lot, if not the majority of our share repurchasing in the second half. So we're still very open to that program and we'll look forward to continuing it.
The dividend increase really is about underscoring our commitment on the dividend side as well. We stepped up the dividend in a meaningful way at the beginning of the year, but truly probably increased it at the more conservative end of the payout range we like to be at. So we were at 25% with the $0.60 dividend per share. And part of that is when we increased the dividend at the very beginning of the year, we were contending with more uncertainty with regard to the tax rates just being lifted on capital gains and dividends and the fiscal cliff situation, the debt ceiling situation. So with more clarity on we felt really comfortable stepping up the dividend to the higher end of the payout range that we'd like to be in.
We'll go next to Oliver Chen with Citi.
Hi, everyone. This is Nancy Hillicker filling in for Oliver Chen. I have one question related to just product. In terms of athletic apparel within the different brands Gap, Old Navy and Athleta, Could you give us an update on how athletic is performing? It seems to be a popular category this season.
And also, if you could just give us a little bit more information on updates with Intermix and Athleta and performance there in particular?
Well, what I would say is athletic women's athletic apparel has been popular for many seasons. And it's the reason that not only did we decide to make the decision to acquire Athleta, but also to boost our presence in that category by really introducing Gap fit into the Gap business. And you can see the active product and the active brand you see at Old Navy. So our view is that this is not cyclical that you have a long term opportunity where women in general are looking at different combinations of occasions and outfits and it's you don't have to walk too many malls or too many schools or see people on weekends that there's it'd be a little bold of me to call it the new denim. But there is something about the occasion of wearing something that's very fitted that you're comfortable in, that's casual, that can also look good.
I think that we've covered the basis because similar to denim, you have different people buying at different price points. You have Old Navy, who have their active bottoms, which again are doing extremely well at $29 You have Gap with Gap Fit at $49 and you have Athleta around the $79 price point. So to us, as the category continues to grow, if it is like denim, then we are really well positioned on really where the majority of the business is going to be done are going to be in those three price points. And as long as the people who run those businesses continue to differentiate them, put the right technical properties into them, make sure that the fit is phenomenal and consistent. And then you can have fun with it.
After all, we're in the fashion business unlike other companies. So when it comes to color and print and patterns, that's something that comes naturally to our teams. So I think that we're really well positioned in that business. Intermix, again, we're just very happy. It's early days and we'll open a few new stores this year.
I think the team is doing a good job in New York. I think Art Peck that's leading it is really trying to think about the business strategically. But we're really happy with the brand and it just gives us a chance to get not only the learning we're going to benefit from in Gap Inc, but a chance to provide some of the advantages Intermix would never have on their own. So if you think of what we're really good at, we're really good at the online. This is at no word of importance.
We're really good online. That's something that could really help the Intermix business. We understand real estate and fleet management. That's something that we can help intermix with. And the list goes on and on and on about how do we combine our competitive advantage and our strength to this really good brand and gain share in the luxury business, which is not something our portfolio had the opportunity to do before we acquired it.
So far so good and more to come.
Thanks so much. Congratulations.
We will take our final question from Ike Boruchow with Stern AG.
Hi, everyone. Thanks for taking my question. I guess the question is on marketing and I guess it's a question for both Glenn and Sabrina. Glenn, the idea to go back to TV for the first time in 4 years, could you talk about what the rationale was and how you thought about that from an ROI perspective? And then I guess Sabrina, when we think of your advertising dollars have been roughly low single digits up in the first half of the year, because you're going back to TV in terms of how much that cost, I mean, how should we kind of expect that for Q3 in the back half if you can give any guidance?
Well, I'll just start sort of from a financial perspective. We feel really good about the investments we are making in marketing. And even though our traffic is still slightly negative, it has been improving from Q1 into Q2. With regard to the television, I will tell you that the team has just done an excellent job of being really efficient with that spend, because unlike the last time we were on television, which was holiday 2009, when we used to invest quite a bit of dollars to do national network TV, we're no longer pursuing television in that fashion. So it's going to be much, much more focused and surgical on our top markets and buying spot TV, which I think these days especially is just much, much more efficient than that old national network.
So that's how we're keeping the dollars well in hand and we think it's a solid investment. I'll turn it over to Glenn.
And I mentioned in the opening comments that there's different gates that not just GAAP, we're not picking on them, that if anybody wants to shift their investment in any kind of significant way, again, the investment increase is not going to happen. But moving the money around and experimenting with new mediums, we tend to get involved those conversations. GAAP very effectively, crossed all the gates. I talked about my opening comment. The big thing for me is television is to be repetitive as the medium, but what I like is the content that the team is putting together that can be used in social.
It can be used in our online site. It can be used in cinema. It can be used on television. So the content is what's important. And our CMO for Gap, who is super talented working with Steven Sonex and the team has come up with some great content.
Now within the framework of how much money they have to spend, which even in short in 4 short years between 2,009 and today, the options for that team are multiples more than they would have had in 2,009 where television was probably 90% of the use of expense on the content we developed. I'm not going to give the number, but it's a number much, much less and you're much less dependent on. Although it's still a very important medium, you're much less dependent on it. So I think the knock on effect of television and all the other levers that the team is going to use is going to be great. I think the creative was well thought through.
I think it's very GAAP appropriate. I think it's in a season we got something to talk about, which is back to blue, back to our heritage, what we stand for, how we want to differentiate ourselves. So I feel good about what they're doing. And as I said, whether this produces another use of that medium, we're going to produce content for holiday. Whether we use television medium is to be determined, but we're going to have content.
That's how I'll leave it with you. Great.
Thanks so much.
I'd like to thank everyone for joining us on the call today. As a reminder, our earnings press release, which is available on gapinc.com, contains a full recap of our 2nd quarter results as well as the forward looking guidance included in Sabrina's remarks. As always, the Investor Relations team will be available after the call for further questions. Thank you.
Thank you. That does conclude our conference. You may now disconnect.