This summary is based on the first quarter fiscal 2007 earnings call conducted by Gap, Inc. (GPS: chart) on May 24, 2007.

Vice presidents, Investor Relations: Evan Price
Chief Financial Officer: Byron Pollitt
Chairman and Chief Executive Officer: Robert Fisher
President, Old Navy: Dawn Robertson

Key Investors Issues

- EPS were 22 cents a share compared to 28 cents a share last year.
- Net income was $178 million down 26% from $242 million during the year-ago period.
- Revenue was $3.56 billion compared to $3.44 billion in the comparable period last year.

First Quarter Highlights

Earnings were $178 million, or 22 cents per share.

Included in first quarter earnings were the following two items:

- A 37% effective tax rate which bested from favorable tax adjustments.
- Approximately $45 million of losses related to the planned closure of Forth & Towne.

- Weighted average shares were $819 million.

Total sales were $3.6 billion, up 3% versus last year.

Total company comparable store sales were down 4% versus down 9% last year. This 7 percentage point spread between sales growth and comparable store sales was driven primarily by new stores and a 23% increase in online sales versus prior year.

Gross profit decreased 2% to $1.4 billion.

- Gross margin was 38.1%, down 210 basis points compared to last year, with 30 basis points from the deleveraging of occupancy expenses and 180 basis points from lower merchandise margins, the latter driven by the marketing activity at Gap brand.
- Gap brand entered the year with excess inventory, creating markdown pressure.

The company is committed to simplifying organization with the objective of creating a more nimble, cost effective operating structure.

This is an endeavor that is under way across all parts of the enterprise today, and all brands are in varying states of progress.

With first quarter operating expenses of $1.1 billion, off $85 million over prior year, the company recognizes that costs must be brought into better alignment with top line results.

- Operating expenses include charges of $44 million related to Forth & Towne.
- Marketing expenses were $116 million, versus $97 million last year. The increase was driven by an incremental TV campaign at Gap.

The company ended the quarter with $1.8 billion in inventory down 5% over the first quarter of 2006.

- Inventory per square foot was $44, 8% less than last year.
- Capital expenditures were $122 million.

The company opened 41 new stores and closed 20 in the first quarter.