Revenue Recognition

Revenue Segments

Business Segments

GAP Inc. Revenue Analysis by Business Segment

Revenue by Business Segment

Figure 1: GAP Inc. Revenue by Business SegmentSource: FactSet

Figure 2: Percentage Breakdown of Revenue by Business Segment for 2023Source: Fact Set

Components of GAP Inc. Revenue

As seen above, the biggest business segment that revenue comes from is Old Navy Global. As seen in Figure 1, in 2023 the revenue for Old Navy Global was $15.616 billion. Other components that make up GAP Inc. revenue include Gap Global which makes up roughly 25%, Banana Republic Global which is about 14% and Athleta making up the last 9& in 2023.

Revenue Recognition

Gap Inc. recognizes revenue primarily from merchandise sales at its stores, online platforms, and through franchise and licensing agreements. Revenue sharing from credit card agreements, including private label and co-branded credit cards, and breakage revenue from gift cards and loyalty points are also significant sources of revenue. Revenue from online sales is recognized at the time of shipment, with an allowance for estimated merchandise returns. Credit card agreements with third parties, such as Barclays, involve revenue sharing and reimbursements for loyalty program discounts, with separate performance obligations for providing a license and redeeming loyalty points. Revenue associated with these agreements is classified within net sales. Franchise agreements for operating Gap Inc.'s brands globally entail providing licenses and supplying merchandise, with revenue recognition occurring upon subsequent sale or transfer of merchandise control. Deferred revenue is applied when cash payments precede performance obligations.

Vertical Analysis

GAP Inc.

Cost of Goods Sold

The largest expense as a % of revenue for GAP Inc. according to the vertical analysis is Cost of Goods Sold which over the past 5 years has been over 50%. Because they manufacture the items that the sell this is understandable for them to have a high percent in COGS.

Source: S&P Capital IQ

Selling General & Admin Expense

The second largest expense as a % of revenue for GAP Inc. is SG&A. This represents the costs that are associated with running the day-to-day operations of a business that are not directly related to the production of products. Because GAP Inc. is a major retail corporation, there are substantial costs associated with managing and promoting its retail operations through various brands.

Source: S&P Capital IQ

Income Tax Expense

Another important expense that I feel is notable is the Income Tax Expense. During the year 2020, it was a negative percentage of the revenue because it was during the height of the COVID-19 pandemic. A contributing factor to Income Tax Expense is also where the company is headquartered. GAP Inc. headquarters is in San Francisco.

Source: S&P Capital IQ

Urban Outfitters

Cost of Goods Sold

Just like GAP Inc., Urban Outfitters has a majority of their spending's on COGS with the last five years being over 60% which is still considerably higher than GAP Inc.

Source: S&P Capital IQ

Selling General & Admin Expense

URBN's SG&A has shown to be consistent over the past five years but has been increasing YoY for the past three years. It is also much lower than GAP Inc.

Source: S&P Capital IQ

Income Tax Expense

URBN's Income tax as a percent of revenue is low and in 2023, normalized to pre-pandemic levels. There levels are also lower than GAP Inc. over the past 5 years.

Source: S&P Capital IQ

Quality of Earnings

Figure 3: Earning Ratio Vertical AnalysisSource: FactSet

As seen in the above figure, the quality of earnings had some major fluctuations over the past 5 years with very negative years in 2020 and 2022. over looking the two outliers during 2020 and 2022, GAP Inc. has seemed to have recovered smoothly since pre-pandemic levels. The figure above only has it until October 28,2023 for data which is messing up the Earning Quality Ratio for the year 2023. Because they have been able to recover this shows a positive shift in the company's future outlook since many companies were struggling during the pandemic years. Both Cash Flow from Operations and Net Income have increased significantly since after the pandemic showing that GAP Inc. was able to face the difficulties and bounce back to being a major competitor of the appearl retail business.

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