Good afternoon, ladies and gentlemen. My name is Cody, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Gap Inc Fourth Quarter 2019 Conference Call. [Operator Instructions] I would now like to introduce your host, Ms. Tina Romani, Head of Investor Relations. Please go ahead.

Good afternoon, everyone. Welcome to Gap Inc.'s fourth quarter 2019 earnings conference call. Before we begin, 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 the description and reconciliation of the non-GAAP financial measures as noted on Page 2 of the slide supplementing Teri's remarks, please refer to today's earnings press release as well as our most recent annual report on Form 10-K and our subsequent filings with the SEC, all of which are available on gapinc.com. These forward-looking statements are based on information as of March 12, 2020, and we assume no obligation to publicly update or revise our forward-looking statements. Joining me on the call today are Interim President and CEO, Robert Fisher; Executive Vice President and CFO, Teri List-Stoll; and incoming President and CEO, Sonia Syngal. As mentioned, we will be using slides to supplement our remarks, which you can view by going to the Investors section at gapinc.com. With that, I'd like to turn the call over to Bob.

Thank you, Tina, and thanks everyone for joining us on the call. Today, you'll hear from Teri, who takes us through the quarter as usual, and then I've asked Sonia, our newly announced an incoming CEO, to join and share a few thoughts before we open up the line for Q&A. Before we jump in on the numbers, I want to say a few words about why the Board and I are so confident in our choice of Sonia as the next leader of this great company. I've had the opportunity to work with Sonia over her 16-year tenure with the Company, and even more closely this past year. Sonia led Old Navy from $7 billion to $8 billion in sales between 2016 and 2019, expanding its North American presence to over 1,200 stores in the U.S., Canada and Mexico, scaling its e-commerce site to the Number 4 largest apparel site in the U.S. and building competitive omni-channel capabilities. She also drove the evolution of the Company's product to market model, and I've watched her lead organizations across the portfolio: our international business, supply chain, and most recently, Old Navy with vision, conviction, and a constant eye on the needs of our customer. Sonia has a deep understanding of what drives performance and productivity, always focused on continuous improvement. This is why she is the right leader for this organization at this transformative time. She's a passionate leader focused on moving fast, while driving a culture of accountability and alignment. What I really admire about her is that she leads with both vision and heart. Additionally, she brings a wealth of institutional knowledge and the skills and experiences to best lead this Company during this time. Sonia is someone who can hit the ground running, and she already has. In addition to our Q4 earnings, we also announced key members of Sonia's new leadership team. As part of that, Katrina O'Connell, who most recently served as CFO and SVP of Strategy and Innovation at Old Navy, will step into the Gap Inc. CFO seat. I've personally known Katrina for 25 years. This is a very deserving and important announcement. Teri will stay with the Company for the next few months to ensure a smooth transition, and I'd like to thank her for her many contributions to our company over the past few years and for her steady, clear-eyed counsel and partnership. Finally, I want to acknowledge the challenges that coronavirus is creating for our customers, our employees, our business, and our analysts. I can't imagine what you all are going through right now, and I just wanted to acknowledge that. Teri and Sonia will add some detail around coronavirus, but please note that as a company, we're committed to protecting our people, the people who shop with us, and the employees who are the heart at Gap Inc. And with that, I'll turn it over to Teri. Teri List-Stoll: Thanks Bob, and let me also thank you on behalf of our employees and the Board for the leadership and support over the past four months. This has been an important period of transition for the organization. With our decision to no longer pursue the separation, we were clear we would not revert to how we had operated in the past. With your leadership, we have begun that forward progress, providing more focus and accountability and being a champion of the imperatives for transformative change. With our announcement last week that Sonia will serve as Gap Inc.'s next CEO, the organization has more confidence that the path forward will continue to build on the changes being implemented and a strong sense of urgency in driving the transformation necessary for improved results and future growth. It's difficult to talk about the business without first acknowledging coronavirus. As most have noted, the situation remains highly fluid, and we are of course monitoring developments closely, while establishing global contingency plans for a range of potential scenarios. There are two important impacts to consider, demand suppression and supply chain disruption. It's early days to fully estimate the implications of either. Let me start with supply chain where we know a bit more. Over the last year, we've made meaningful progress against our migration away from China and currently source about 16% of our goods from China, down from 21% last year. However, we should note that a significant portion of fabric production occurs in mills operated in China supplying vendors outside of China. While early days, it appears that much of the mill production will remain largely on schedule. Additionally, we did not experience any meaningful disruption from factory closures in China at the start of this year. With regards to our broader global supply chain network, i.e. our vendors outside of China, our global sourcing organization is working closely in coordination with our logistics and transportation teams to minimize any potential delays or disruption, particularly as it relates to fall and holiday flow. We'll keep you apprised of any impacts or unexpected disruptions that occur. And I'd just like to take a moment to thank the tireless efforts of our sourcing, logistics, and BCP teams over the last several weeks. Our sophisticated supply chain operations, along with our strategic partnerships throughout our sourcing and logistics network, give us confidence in our ability to navigate through the very dynamic and fluid situation we're facing today. Turning to demand suppression, China, which represents approximately 3% of global net sales, has been our most impacted region quarter-to-date as a result of store closures and meaningfully reduced traffic trends. Our businesses in Japan and Europe have also been impacted by store closures and reduced traffic trends, but they're earlier in the cycle. And with the U.S., cases are just emerging. We're starting to see some impact on traffic here, which we - while we are unable to reasonably estimate the full impact of coronavirus on the year, based on the reading of the trends we've seen in China, Japan, and Europe, we currently estimate the Q1 impact in those markets will be a reduction of approximately $100 million in sales. We have not yet quantified an impact for North America. I'll provide more perspective later with guidance for 2020. With that, let me turn to the results, and I'll start with an overview of performance by brand before getting into the specifics of the fourth quarter and moving on to our outlook for 2020. 2019 was a challenging and disappointing year with each of our major brands performing below what we believe is their future potential. While Old Navy drove the majority of our earnings decline in 2019, we are encouraged by the signs of stabilization in the fourth quarter with the brand delivering a 5% increase in net sales and a flat comp, ahead of our previous expectations. Importantly, women's positive comped for the first time since Q3 of 2018 and delivered margin expansion that outpaced the brand average, driven by strength in key categories such as fleece and active, which all delivered double-digit comps. Further, sales less traffic, a leading indicator of customer response and product acceptance, inflected positively and accelerated throughout the quarter. While there were bright spots in the quarter and we're gaining confidence that the product changes we're making are taking hold, we still have a couple of areas we are focused on for improvement, namely traffic. The team is laser-focused on traffic recovery, particularly as product continues to improve. We are looking at natural traffic driving levers such as marketing where the brand recently engaged a new creative agency after a comprehensive review. We're also investing in data and analytics, an area we have not historically exploited as a company, in order to capitalize on the full potential of Old Navy's known active customer file, which is now 45 million strong. As you've heard from Sonia previously, we're in the early days of unlocking customer value through segmentation, personalization and loyalty. We have innovative in-depth work under way to amplify data-centered insights to better target and deliver a personalized experience for our highest quality and highest value customers. This is foundational work that will ultimately increase store and site frequency, driving better growth. While overall 2019 performance was disappointing for Old Navy, we saw improvement in the fourth quarter and are better positioned as we enter 2020. We continue to buy inventory much tighter. We are seeing improvement in product acceptance. The organization is stronger and stable. And the separation work from last year has solidified the Old Navy's strategic focus. Old Navy remains the most important brand in our portfolio with strong performance and attractive growth prospects. The fundamental brand health remains strong. And even in this tough year, Old Navy gained share and remains the second-largest U.S. apparel brand. Now turning to Gap, as we've discussed in previous quarters, the primary focus for Gap brand was to improve profitability. Over the last year, the brand has made good progress on building the foundation to stabilize the business, including tightening inventory, expanding margin and reducing costs. However, there were some meaningful executional issues in the fourth quarter, which highlighted slower progress in strengthening the underlying brand health. Unclear brand positioning, poorly executed marketing messages and inconsistent product point of view continued to hinder overall performance, leading to disappointing top line results. We made several changes at the senior leadership level, including appointing Mark Breitbard to provide oversight across our specialty brands. Mark is able to leverage his deep product, brand and management experience for the task at hand, which is to address the brand positioning, define the customer target, and transform the product and operating model to stabilize and restore the financial profile of this business. While we continue to believe that the brand is better than the business and respect the work the team delivered to avoid further deterioration of earnings, including a focus on margin expansion, reducing expenses and execution against the specialty fleet restructuring, we are very disappointed with the lack of progress on the fundamental strategic clarity necessary to objectively evaluate the brand's fit in our portfolio. We remain clear-eyed about the imperative to improve the business. Banana Republic had mixed results. On the positive side, we were pleased to have seen an acceleration in Q4 comp to flat, and online continued to be a bright spot with positive comps throughout the year. However, our overall performance in 2019 was disappointing as we gave back some of the gains delivered in 2018. Start-up issues associated with the implementation of a more sophisticated inventory planning system resulted in a suboptimal mix in key sizes, impacting performance for much of the year. This now is largely fixed, so the focus is on strengthening profitability with cleaner inventory positions and improved yields. As we discussed with you last quarter, by better leveraging data analytics and existing tools to implement a more strategic promotional strategy, we see meaningful opportunity for improvement. During the year, the brand also focused on reinventing customer access, which included launching rental subscription, Style Passport, buy online pickup in store, and testing a smaller store format. Style Passport, while still a small initiative, is ahead of plan in moment and provides new customer acquisition and valuable customer insights that can be used to design future products and experiences across our entire portfolio of brands. This is one of the roles BR plays in our portfolio. In addition to profitable growth, it can provide valuable scale and learnings that can be applied across the other brands. Let me finish up with Athleta, which remains a gem in our portfolio, finishing 2019 just shy of $1 billion and delivering top line growth of 12% with low-double digit earnings growth. Despite the growth positioning in our portfolio, Athleta didn't have its strongest year when measured by the fundamentals. We made some design talent changes midyear that were intended to strengthen our operational discipline and esthetic consistency. We saw some of the lingering impacts in the fourth quarter, primarily driven by assortment mix challenges, along with inventory lateness. During the quarter, we were light on bottom and a bit heavier on tops and outerwear. The mix challenges were then exacerbated by inventory delays, which left the business out of stock in key styles, ultimately impacting conversion. The teams have a strong grasp on root causes and have taken action to implement necessary changes in the product to market process. Our sourcing organization is focused on developing even stronger partnerships with key vendors, which is important, given the complex technical nature of this product. Despite these challenges, the brand continued to gain market share and has much to celebrate in 2019. Franchise bottoms and girls continue to be areas of strength. Core bottoms franchises in both performance and lifestyle anchor the business and deliver exceptional performance. Limited edition and novelty items delivered strong results throughout the year and provided differentiation against competition. The partnership we announced with Allyson Felix in July has elevated the brand with media impressions that are driving meaningful awareness and value. The girls business continues to post double-digit comp with expansion continuing across the fleet. We opened 29 stores in 2019, ending the year with 190 stores. Our inclusive brand positioning, unique product offering and high-touch experiential store service model sets us up to win in this competitive retail landscape. And we plan to open about 20 stores in 2020, in line with the brand's historical pace of opening 15 to 20 stores per year. Taking the learnings from the past year, the brand is completing some in-depth work around customer and assortment that will support its accelerated growth plan. With innovative and sustainable products, beautiful marketing and a clear brand equity with the very relevant Power of She positioning, not to mention the unique distinction of B Corp status and less than 50% brand awareness. Athleta remains well positioned to grow and capture market share. Now, before turning to financial performance, I just wanted to run through a change in the strategy we made this quarter regarding our flagships, which resulted in a material impairment charge. As we and many of our peers have noted, the marketing value of the historical flagship model has diminished with the continued confluence of channels in the omni-shopping journey, particularly considering the size, location, premium brands and longer lease terms associated with flags. Frankly, it's a bit old fashion and no longer makes sense in today's omni-channel environment. And where possible, we are working to exit the leases on some of the least profitable stores through buyout or sublease. Consistent with the historical view of the role of the flagship stores, our policy had been to assess for impairment at the Companywide level. We treated flagships in this manner because we believed in their strategic importance to the brands and the store fleet by providing broad visibility and increased brand awareness both regionally and globally. In fiscal 2019, in light of our change in operating strategy for flagship stores and including an evaluation of whether to exit or sublease certain flagship store location, we determined that for flagship stores, the individual store represents the lowest level of independent identifiable cash flows, and as a result, we recorded an impairment charge in the fourth quarter. Each of these sites has assets on our books for both the capital we invested in the stores as well as what is referred to as an operating lease asset that was established as part of new lease accounting rules that went into effect at the beginning of this year. The total assets associated with stores has increased significantly with the establishment of this operating lease asset, which approximates the future minimum lease payments. During the fourth quarter, we completed our impairment assessment and recorded a $296 million or $0.59 non-cash impairment charge to reduce the carrying amount and the corresponding operating lease assets to their fair value. The majority of this charge is related to our Time Square location agreements that were entered into in 2015, extend to 2032 and where rents have fallen dramatically. To provide some additional perspective, in 2019, our 31 flagships represented approximately 3% of sales and were responsible for approximately 110 basis point drag on operating margins, or roughly $120 million. Each location is unique, and we are engaging in conversations with our landlords, working toward financially responsible exit or sublease scenarios with the goal of ultimately reducing the economic drag over time. Of note, with this writedown, we do expect about a $0.04 benefit from lower depreciation expense on an annual basis. With that, now I'll briefly summarize fourth quarter and full year results. Net sales for the quarter were $4.7 billion, up 1% on comp sales down 1%. For the full year, net sales were $16.4 billion, down 1% on comp sales down 3%. Spread for the year was largely driven by new store openings of Old Navy and Athleta, as well as non-comp Janie and Jack sales, partially offset by Gap store closures. Gap store closures in 2018 and 2019 reduced sales by approximately $200 million in 2019. Total sales and comps by division are in the press release. Our reported loss per share was $0.49, which includes the costs associated with our previously planned separation, our specialty fleet restructuring and the non-cash impairment charges I just discussed. Excluding these items, our adjusted fourth quarter earnings per share were $0.58, down 19%. On a reported basis, full year earnings per share were $0.93. Excluding the flagship impairment charges, separation-related and restructuring costs, the first quarter gain on sale of a building and second quarter impact of tax reform, full year adjusted earnings per share were $1.97, which includes about a $0.05 detriment from the tariffs implemented in 2019. To provide a bit more perspective on gross margin and SG&A, on a reported basis, fourth quarter gross profit totaled $1.7 billion and gross margin expanded 20 basis points to 35.8%. On an adjusted basis, gross margin increased 70 basis points. Merch margin expanded 20 basis points as reported and 30 basis points excluding the impact of restructuring, driven by margin expansion at Old Navy and Athleta, partially offset by deleverage at the remaining brands. Rent and occupancy was about flat as a percent of sales versus last year and leveraged 40 basis points excluding restructuring. For the full year, reported gross profit was $6.1 billion and gross margin was down 70 basis points to 37.4%. Excluding the impact of restructuring, gross margin was down 50 basis points. Merch margin was down 60 basis points for the year as reported and 50 basis points excluding the impact of restructuring, primarily driven by higher promotional activity at Old Navy. Rent and occupancy deleveraged 10 basis points as reported and was about flat excluding restructuring. As we continue to execute against our fleet restructuring work, our rent and occupancy leverage point continues to come down. Looking to 2020, we expect to be able to leverage rent and occupancy on a negative low-single digit comp. On a reported basis, fourth quarter and full year total operating expenses were $1.9 billion and $5.6 billion respectively. As we've noted, we expected fourth quarter SG&A to deleverage as we lapped bonus accrual reversals in the fourth quarter of last year and increased expenses related to marketing and technology investments in 2019. On an adjusted basis, operating expenses deleveraged 280 basis points when excluding the flagship impairment charges, separation-related costs and specialty fleet restructuring costs. For perspective, the lapping of the reversed bonus accrual from last year accounted for 140 basis points of deleverage. Of note, a portion of this reversal related to HQ employees with - that sits within the other bucket, shown on Slide 9 of our earnings slide. The remainder sits within the respective brand results. And for the full year, on an adjusted basis, operating expenses deleveraged 130 basis points when excluding the flagship impairment charges, separation-related costs, specialty fleet restructuring costs and first quarter's gain on building sale. The deleverage is driven by an increase in expenses related to information technology, an increase in bonus expense compared with the lower fiscal 2018 bonus expense, an increase in advertising expenses due to increased spending at Old Navy and Atlanta. Moving to taxes and interest, the effective tax rate was 27.6% for the fourth quarter. Excluding the non-cash tax impacts related to restructuring and impairment charges, our adjusted tax rate was about 8 points lower. The lower adjusted tax rate was primarily due to adjustments in non-deductible executive compensation, utilization of foreign tax credits, and jurisdictional mix and timing of quarterly earnings. For the year, the effective tax rate was 33.5%. Excluding current adjustments to our fiscal year 2017 tax liability for tax reform guidance and certain non-cash tax impacts related to restructuring impairment charges, our adjusted tax rate was about 8 points lower, or closer to our expected run rate of 26%. Providing some perspective on inventory, we ended the quarter with inventory up 1% compared to last year. Excluding the impact of the Janie and Jack acquisition, store openings net of store closures and tariffs, inventory was down about 1%, in line with previous guidance. As we turn to 2020, inventory productivity will continue to be a top priority for the organization, particularly in light of the uncertainty presented by coronavirus. As we discussed with you last quarter, while we're making progress on more conservative inventory buys, particularly given the challenging traffic trends, there is more opportunity to better leverage core capabilities to eliminate waste in our buying process and to improve allocations based on channel demand and localizing our assortments, ultimately increasing yield, gross margin, return on inventory and improving our working capital profile. Moving now to store count and capital expenditures. Regarding our previously announced restructuring program, as I mentioned last quarter, our discussions with landlords around closures continue to be difficult, which may hinder our ability to execute on our strategy as quickly and decisively as we would have liked. That said, we are still targeting to close about 230 specialty stores by the end of 2020, and we continue to expect total costs of the program to be about $250 million to $300 million, which includes the estimated buyout costs of four flagship locations, with the majority expected to be cash expenditures. During the year, we closed 141 Gap brand stores globally. For the 79 closures specific to our previously announced restructuring program, primarily North America specialty closures, we incurred costs of about $61 million or about $0.15 per share in 2019. In 2020, we expect to close about 170 Gap stores globally and estimate restructuring costs of about $190 million to $240 million with the majority expected to be cash expenditures. For the two-year program, we continue to expect these closures to result in an annualized sales loss of about $625 million and annualized pre-tax savings of about $90 million. On a net basis, we added 99 Old Navy and Athleta stores, acquired 139 Janie and Jack locations and closed 87 Gap, Banana Republic and Intermix stores. We ended the year with 3,345 Company-operated stores. Fiscal 2019 capital expenditures were $702 million, below our previous guidance of $835 million, primarily driven by reduced separation-related capital spend. Just breaking down the components of spend: $575 million of base capital, in line with previous guidance; $70 million of expansion costs related to one of our headquarters buildings and the build out of our Ohio distribution center, below our previous guidance; and $57 million of separation capital investment, primarily related to technology and logistics, about half of which was written off as a separation cost in Q4, given the decision to stop the planned spin of Old Navy. Regarding the balance sheet and cash flow, despite a challenging year, fiscal year 2019 free cash flow was $709 million compared with $676 million last year. We paid $364 million in dividend and returned $200 million through share repurchases during the year. We ended the quarter with $1.7 billion of cash, cash equivalents and short-term investments, well above our historical desired cash cushion of between $1 billion and $1.2 billion. And our ending share count was 371 million shares. Now, turning to our outlook for 2020, providing guidance at this stage is a bit tricky. Given where we are in the evolution of the coronavirus impact and the inability to adequately quantify the impact on the business, particularly for the U.S., we are providing guidance largely excluding the impact of coronavirus. For the first quarter, we have included the expected impact in our China, Japan and Europe businesses only where we have a better basis to estimate the impact. Our outlook does not incorporate the potential unknown impacts from the evolving coronavirus outbreak, including possible further spread in other regions, meaningful deterioration from current trends or potential disruption from any supply chain impacts. Given that, on a reported basis, we expect earnings per share to be in the range of $1.23 to $1.35. Excluding costs associated with our Gap fleet restructuring plans, we expect earnings per share to be in the range of $1.80 to $1.92, which includes a detriment of about $0.10 related to the estimated Q1 impact of coronavirus in our China, Japan and European businesses. Now, let me provide you with some color around the assumptions embedded within this guidance range. We expect for fiscal 2020 that both comp sales and net sales will be down low-single digits. These ranges embed 2020 positive comps at Old Navy, Athleta and BR, but these are offset by negative comps expected at Gap brand; about a $0.04 benefit from lower depreciation expense as a result of the 2019 flagship impairment charge I talked about; about a $0.03 detriment for the impact of tariffs weighted toward the first half; and a reported effective tax rate of about 30%. Excluding the non-cash tax impacts related to expected restructuring charges, we expect the adjusted fiscal year 2020 effective tax rate to be about 26%. Regarding SG&A, in light of disappointing performance at Gap and any further potential disruption related to coronavirus, we'll be focused on the levers we can control, including disciplined expense management. As we look to 2020, we're seeking to hold spending flat excluding anticipated reinvestments in our bonus plan that will better reflect the performance culture, aligning employee and shareholder interest, while enabling us to attract and incent talent that are motivated to fuel our path forward. As we reset our bonus payout and lap the minimal payout this year, we expect expenses to deleverage next year. Despite the challenging retail environment and our own disappointing performance, our reliable cash generation and balance sheet remain strong, and we are committed to taking the necessary actions to further strengthen it in light of the economic uncertainty ahead, given market volatility and the coronavirus. Over the last three years, we've grown top line by nearly $900 million and generated an annual average of $1.4 billion in operating cash flow and $700 million in free cash flow. Over that same time, we've increased our dividend and distributed over $2 billion in cash through share repurchases and dividends. Reliable cash generation and our strong balance sheet allow us to invest in transforming the Company's operations to unleash the growth potential of Old Navy and Athleta, while simultaneously taking the necessary actions to address the performance of the Gap brand. As we look to 2020, our capital allocation philosophies and priorities remain largely consistent: first and foremost, to invest adequately but responsibly in the business for growth; second, maintaining our dividend, which currently provides an 8.8% yield. With regards to share repurchases, in light of the current economic uncertainty stemming from a number of factors including the coronavirus outbreak, we intend to suspend share repurchases in 2020. We intend to proactively manage our balance sheet and will opportunistically refinance our 2021 bond maturity subject to market conditions. We remain comfortable with our desired cash cushion of about $1 billion to $1.2 billion. In light of more focused portfolio priorities and a desire for improved ROIC as well as cash conservation, we are reducing capital spending in 2020 to about $600 million, which includes about $50 million of expansion costs related to build-out of our Ohio distribution center, which began in 2019. Investment priorities will be distorted to focus on profitable growth opportunities at Old Navy and Athleta, including profitable new stores. Investments in technology and supply chain initiatives will be focused on the growth brands that are expected to provide scale and leverage to all brands in the portfolio. So to close this out, this has been a very challenging period for retail and our Company, and it looks like more challenges ahead. The events of the last several years can serve as a positive catalyst, and I'm very confident that Sonia and her leadership team bring the skills and experiences to best lead the Company during this time. Her focus on operating discipline and accountability are right for the challenges ahead. And the talented organization that supports her are up for the task. I'll be cheering from the sidelines for the foundational work we have undertaken to come to fruition in the years ahead. And with that, I'll turn it over to Sonia.

Thank you, Teri. It is truly an honor to lead this company that's built a rich heritage over the past 50 years. The opportunity for Gap Inc. to compete successfully in the years to come is the task at hand, and I look forward to paving the way together with the talented teams in our stores, distribution centers, offices around the world and supplier partners, some 130,000 strong. It goes without saying that the week following my announcement as CEO has been unique. Right now, like everyone else in the marketplace, we are facing a rapidly evolving climate based on the COVID-19 situation. We're leveraging learnings and business continuity planning that began with our Asia team. We will continue to assess and manage through disruption in real time, particularly in hotspots such as Washington and New York, as we see this unfold further in North America. While the full impact and the duration of the outbreak is unknown, we are better positioned than most in our space to navigate the uncertainty ahead. One, we had healthy free cash flow generation and nearly $1.7 billion of cash on hand at year-end. Two, we have a long-standing large-scale vendor relationship network that supports us. And three, we are well prepared to be prudent with the other levers of our business, including expense and inventory management, as well as capital spending. We've just come off completing a substantial body of work that began as we prepared for the separation, which will enable us to accelerate cost transformation. We're entering the year with the benefit of knowing this company better and more objectively than we ever have known. Culturally, we identified bureaucracy, complexity and misaligned incentives, and in some cases, lack of accountability. Across all facets of the organization, we now have a far more realistic assessment of how we can be more efficient, where we can be faster and where we may need to invest to win. Aside from the near-term business challenges presented by COVID-19, we have undeniably strong assets, and it starts with our brands. Old Navy is the Number 2 largest apparel brand in the U.S. and Athleta is one of the fastest growing brands in the athleisure sector. And we have strong brand equity in Gap and Banana Republic. Our customers and data: we have about 60 million known active customers, one of the largest customer files in the industry. Yet, we're early days in maximizing the value of these relationships. Our e-commerce business: we were early to e-commerce, and the global online business generates over $4 billion in sales. It's a profitable business for us, driving outsized growth with much runway ahead. And our sourcing, logistics and IT networks: they provide us portfolio capabilities and significant scale advantage. All that said, our performance had been lackluster over the last several years. Simply put, we have fallen short in execution and have not fully monetized our brands, our assets and the capabilities we have been investing in. There is much work ahead for us to strengthen the performance of the Company and the portfolio. But I believe in the potential of this company and of our team. Our opportunity now is to deepen the love our customers have for our brands and products, which starts with having the right talent in place to guide the work ahead. Today, I announced several leadership team changes, which will take effect on March 23. I'm pleased to share that Katrina O'Connell will take the role of CFO. Some of you may know her and remember her from her days in Investor Relations. She has 25 years of experience at Gap Inc., including as CFO of Old Navy these last three years by my side. Her deep knowledge of the business across the brands and functions makes her a terrific partner for the journey ahead. Mark Breitbard will lead our specialty brands, overseeing Banana Republic and Gap, as well as franchise and international markets. Mark has the benefit of having deep brand leadership experience, both within Gap Inc. and across the industry. And Nancy Green, who joined Old Navy seven months ago, will step up to lead the Old Navy brand while we conduct an internal and external search. Nancy is a proven leader who grew Athleta from $250 million to nearly $1 billion in sales and has made an immediate impact on the Old Navy business. With the partnership and support of Katrina, Mark, Nancy and the rest of the leadership team, we can hit the ground running. Our early priorities will be to first and foremost, make the appropriate but prudent investments to drive long-term sustainable growth with focus on Old Navy and Athleta. We will develop the appropriate action plan for Gap brand, focus on driving the profitability of Banana Republic, and we will zone in on creativity, realize efficiencies that allow us to be fast and focused, while supporting the financial strength of the Company. And lastly, we intend to ignite a winning culture by providing clarity of direction and rewarding for effective execution against our priorities. As we lay out our strategic plan for the future and focus on delivering on our commitments for the current year, we will have our eyes squarely set on returning value to customers, employees and shareholders. Importantly, we will ensure we are taking the appropriate steps to deliver sustained growth through a combination of investing, cost discipline and making the most of our great brands. Before we move on to Q&A, I want to thank Bob and Teri for their contributions and more personally for their tremendous support and partnership to my transition to CEO. With that, we'll open it up for questions.

[Operator Instructions] We'll take our first question from Paul Lejuez with Citigroup.

It's Ex Tracy Kogan filling in for Paul. I had a question about Athleta. The 5% comp that you guys posted for the year, I was wondering what the drivers of that were between traffic and ticket? And then also, as you look at fourth quarter, I know you had some issues with inventory but the drivers there of that 2% comp? Thank you. Teri List-Stoll: Yes. So we - as I said in the script, we continue to see good strength in our bottoms franchise and also in the girls, which really were the key drivers of the business. The execution issues I talked about were really what caused a bit of a lag on what we see as the growth potential going forward in that brand. I don't have the specific traffic numbers in front of me, but we can follow up with you offline on that.

Sure. I guess, in general, has it been more of a traffic-driven comp or more of the ticket, even if you can't quantify? Teri List-Stoll: Yes, we still see positive traffic trends in that [indiscernible]. That's one of the - we talked about the profitability of the stores and the continued strength of the brands. Yes, we definitely continue to see positive traffic as well as positivity.

We'll move on to our next question from Alex Walvis with Goldman Sachs.

I had a question on what you've been seeing in terms of U.S. trends. I know that it's very early to say that - you mentioned that you've already started to see a little bit of slowing in traffic. So, I wonder if you could elaborate on that. And then secondly and relatedly, perhaps you could also share some comments on what you've seen with respect to tourists in both the U.S. and in Europe to the extent that that may have been weak for a little bit longer enough. Teri List-Stoll: Yes, you're exactly right, and it's very early days. And it's - every day this week, in fact, it's been sort of a multiplication of available information. We definitely have started to see some traffic impacts, as you say, started more in the tourist stores where that slowdown was felt. And then, more recently, we've started to see it in some of the hotspots you would expect, in the Northwest and the Northeast, particularly around the New York area. So we're watching it every day. We're putting in place contingency plans. I don't know, Sonia, if there's anything you want to add in terms of how you're thinking about the situation broadly.

Thanks Teri. One of the benefits we have is that we've been watching the impact of COVID-19 in Asia over the last nine weeks and more recently in Europe. And so, working with our Asia teams that have been at this, it has given us a head start in how we think and plan for the North America business. So, as some of these challenges have emerged in our South markets for tourism and in the Northwest and the New York as current hotspots, we feel prepared to move into action and are working hand-in-hand with all the right authorities to focus first and foremost on employee safety, business continuity, supply management, which is in good shape as Terry alluded to in the script, and now, demand management in North America.

In Europe, have you seen weakness concentrated in Italy or is there broader weakness across Europe? And what's embedded more specifically in the guide for Europe? Teri List-Stoll: Yes. So, what we're seeing is the same thing we tend to expect will happen in the U.S., which is sort of waves through the geographies, and so - it started in Italy. But particularly as it becomes more of a global pandemic, the reaction that people have tends to precede and accelerate versus how it may have developed in China, which is one of the reasons it's so difficult for us to be able to fully extrapolate and estimate the impact as it continues this way. So what we've done for the first quarter, where we have a little more experience under our belt in those geographies, is done our best job of trying to estimate what it is for those geographies. But to your point, there's still a degree of uncertainty in [technical difficulty]- Europe. So we will keep you very much posted as we move through the quarter and get further into the year.

[Operator Instructions] We'll take our next question from Kimberly Greenberger with Morgan Stanley. Teri List-Stoll: Kimberly?

Ms. Greenberger, are you on the line still? Teri List-Stoll: We'll take the next question.

Thank you. We'll move on to Lorraine Hutchinson with Bank of America.

Could you elaborate a little bit more on what happened with Gap? That was a nicely positive merchandise margin story for a lot of last year, and it seems like you hit a little bit of a stumble in the fourth quarter. Maybe talk about what happened specifically. And how quickly you think you can fix that and get the margin stabilized there? Teri List-Stoll: Yes. So, we continued to show some margin expansion in Q4. So the missteps really affected top line overall such that the overall profitability became challenged. And it really - it did come down to the - largely the items that I mentioned in my prepared remarks in that we had some marketing executional issues that were both with respect to the campaigns itself, but also some of the digital marketing execution, which affected traffic in the quarter. And we continued to struggle with product assortment, and as I said, sort of the clarity of the brand focus. And so, those are the things that Mark is very much digging into with a high degree of urgency. Sonia is spending time thinking through what the approach is to that brand. I think the thing we would all say - and we've been saying this for a little while is that we will be very objective in evaluating that brand and what we need from that brand to really earn its way in the portfolio. We continue to believe, given the missteps, that we haven't really tested the brand to understand what the possibility is there. But we have a high degree of urgency to address the profitability, and that is priority one for Mark supported by Sonia's view of the strategy going forward.

We'll take our next question from Susan Anderson with B. Riley FBR.

I was wondering if you could maybe elaborate a little bit on the Old Navy brand and what you see that you're doing different now that's driving the improved performance, I guess, particularly on the women's side. And then, I guess, on the Gap front, if you have any thoughts around how you're thinking about the strategy going forward in terms of product such as styling, quality, price, or any changes there? Thanks.

So, I can start with Old Navy. We're pleased with the signs of stabilization demonstrated in Q4 and confident with the sequential improvements we've seen quarter-to-date, really driven by our turnaround in our women's business and continuing to raise the game in our marketing efforts. So, that was fueled by a higher aspiration and clear big ideas as we moved into Q4, also enabled through the tightening of inventory and then excellent execution in our stores and our e-comm channel. So it's a combination of factors, certainly fueled by the turn of the women's business. And yet, we still have much work to do ahead. So we are laser focused on traffic as a priority. And all the signals in the business show that it's a lagging indicator for us but we'll catch up as the sales over traffic continues the momentum that it's seen. And then your question on Gap, the playbook for strong brands is clear. We know how to do this. We've done this for Old Navy with the clarity of the democracy of style and executing flawlessly at every touch point with the customer against that North Star. We've done this with the Power of She in Athleta, and also that shows up with consistency. Ultimately, it begins with that brand clarity. And Mark is hard at work with the team in Gap brand, illuminating that clarity and bringing it to life across the entire business. Coupled with that, the operating discipline and the operational execution goes hand in hand. And that is what we're after. It's what we know how to do and have done in other parts of the Company. And we have a tremendous amount of urgency against moving forward with those - application of those learnings for a brand that is as ubiquitous as Gap. That being said, we're very clear-eyed about the trend in the business and will continue to act with - was an imperative and urgency around the progress.

We'll move on to our next question from Oliver Chen with Cowen and Company.

As we look at various scenarios in this unfolding situation, the topic of social distancing as a key healthcare strategy and what's happening, what are your thoughts if traffic decreases industrywide to low-double digits negative or worse? And also, as you think about a recessionary environment, if you could help brief us on fixed versus variable costs and different items within your control, that would be great. Thank you.

Yes. The good news going into the situation is that we have done some excellent work in preparation for the separation to understand all of our cost drivers, what we can attack and what we can go after. And so, with that work at hand and with the experience we've had in the last 2.5 months in Asia to understand consumer behavior and the cost levers we have to pull, we're moving swiftly into action, leaning into the productivity opportunity and the cost management opportunity, coupled with tight inventory control. That is what is going to enable us to navigate the uncertainty ahead. Again, we had healthy cash flow generation and we start with a very strong cash balance. So we feel well poised relative to many others to navigate what will be an uncertain and difficult environment. Teri List-Stoll: The only thing, I guess, I would add to that, Sonia, of course is that in the social distancing context, we have such a large e-commerce business and we continue to invest in improving that customer experience. And I'm sure, as you go forward, that will be a key priority as well.

Yes, right. Our customers will have many avenues in which to purchase from us, and e-comm is certainly one of them. We also know that our stores are activating a high degree of safety measures linked to all the best advice that we've gotten from government health inputs.

And the last part of this is, as you work with more operators and have great relationships and partnerships there, what are your thoughts about what will happen to the mall and the health and safety of going to the mall and how that may impact your business? Teri List-Stoll: Yes, obviously, it's hard to project exactly the course this will take. But I can imagine that our landlords in the mall, owners are doing the same things we are doing in terms of trying to ensure safe environment for their shoppers and to be able to create as much resiliency as they can in their business model to be able to ensure that they can sustain or rebuild traffic as necessary as we work our way through this.

We'll take our next question from Simeon Siegel with BMO Capital Markets.

This is Dan on for Simeon. Just wondering if you could give any color and quantification on where the brands are versus their historical levels for gross margin? Thank you. Teri List-Stoll: I'm sorry, could you repeat the question?

Just looking for any color, any quantification on where the individual brands are versus their historical gross margin levels. Teri List-Stoll: Versus their historical margin levels. Okay. I'm sorry, I didn't hear. What I would say is that we were pleased, certainly, with Old Navy, which obviously is where the focal point is, and we were pleased to see a lower promotional environment there for Old Navy, building off of the improvement in product that we've been seeing sequentially, and so - and then the tightening of inventory over the course of the year. So we did see some margin progress there. And as we look forward to the coming year, we would expect to continue to see improvement in the merchandise margin, as we continue to see that sequential progress. I definitely would acknowledge that the Old Navy operating margins are below their historical highs. I think, if you go back to a few years, in 2017, that was a particularly strong period of time, and not sure that should be the benchmark of the expectation. I think, across each of our brands, we will expect to continue to see margin progress as we invest in a lot of the capabilities we've talked about that should take waste out of the system and drive both financial margin but also efficiency at the SG&A line as well. So I would say, if you peg us today, we're not at historical highs, which we view as representing an opportunity for expansion going forward.

Thank you. And we'll take our last question from Kimberly Greenberger with Morgan Stanley.

It looks like we lost you again, Kimberly. So I think we're about up on time. So I think that's going to wrap up our call for today. Thank you for joining. Teri List-Stoll: Thank you.

Thank you. That does conclude today's conference. Thank you all for your participation.