Gap_ Inc

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					        Gap, Inc.
        (GPS $18.00)
Christopher Letts, Kevin Smith,
      and Brian Burnham
           Tonight’s Objectives

•   Overview of GAP Inc.
•   Industry Overview
•   Competition
•   Growth Prospects
•   Concerns
•   Recommendation
           Company Overview
• Gap Inc. is one of the largest specialty retailers
  in the world. Gap Inc. operates four well known
  clothing brands.
   – Gap, Banana Republic, Old Navy, Forth & Towne
   – Founded in 1969 in San Francisco
   – More than 3,000 Stores worldwide (2800 stores in the
     U.S., 250 Stores in Europe, German, and Japan)
• Mission: Gap Inc. is a brand-builder. We create
  emotional connections with customers around
  the world through inspiring product design,
  unique store experiences and compelling
           Company Overview

• Focus on continuing to expand market
   – Forth and Towne brand introduced in 2004 targeting
     women over the age of 35
• Focus on cost control
   – Clothing is made through a 5 phase process
   – Design and Merchandising,Planning and
     Sourcing,Production and Marketing,Distribution,
     Sales and Analysis
Company Overview
           The Competition
• Large market of retail stores
• Abercrombie and Fitch; Limited; Express;
  American Eagle, etc.
• Comparing Gap to the competition:
  – Last month all retail sales were down. Gap
    sales were down 3% however comparable
    stores were down 6%
Industry Overview
          Industry Overview
• Specialty Retail Stores
  – Very large, Near saturation
• Retail stores are very abundant in the U.S.
  market place and have experienced
  slowing sales the past couple years
          Growth Prospects
• Gap is currently at the lower end of its 52wk
  – Current Price around $18.00; Target Price $23.50
  – Projected 10% range growth over next several
• Company has large cash balance
  – Tremendous free cash flow provides the
    company with flexibility regarding its strategic
    long-term options and make the shares
    compelling from a dividend, free cash flow and
    balance sheet perspective.
          Prospects (contd.)
• New line still unproven
  – Fourth and Towne line just released targeting
    baby boomer women, ages 35+, market untested
• Should have debt free balance sheet by
• Long-term growth should be solid due to
  expansion in international market
  – Five new test stores and 2 Banana Republics
    being opened in Tokyo
         Prospects (contd.)
• Management attention to corporate
  governance and social responsibility reduces
• Gap has continually expanded their brand
  names and target demographics
  – Gap, Baby Gap, Old Navy, Banana Republic,
    Fourth and Townes
• Higher Risk (beta 1.84)
• Operating in Saturated Market
   – Needs meaningful growth to support shares
     long term
• Rising interest rates have adversely affected
  specialty apparel retailers
• Industry risks include: Fashion, markdowns
  and inventory risk
       Our Recommendation
• Recommendation: Buy
  – New prospects with Forth and Towne and
    more expansion in the international market
    will help The Gap in their efforts to grow in a
    fiercely competitive environment
  – Gap’s balance sheet is saturated with cash
  – Share price is well valued relative to peers
  – Effective management will better position Gap
    for future success and shareholder return

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