Morningstar Rating

Stock Research and Analysis

by Jaime M. Katz, CFA

Bulls Say

Gap could continue to expand profit margins and cash flow if it remains focused on prudent expense management even through weak economic cycles.
Expansion into new markets in Asia offers an entirely new audience for Gap products and could help leverage operating expenses if sales grow faster than we anticipate.
Consistent global unit growth will help generate free cash flow of more than $6 billion cumulatively over the next five years, and we expect some will be returned to shareholders via increased dividends and share buybacks. Read more 

Bears Say

Inflation in commodity prices and labor costs could weigh on merchandise margins and profitability.
In our view, increased competition from domestic mass merchants such as Target and Kohl's, international fast-fashion retailers like Inditex, and e-commerce retailers like Amazon have eroded Gap's one-time economic moat in recent years.
Specialty retailing is highly competitive and has relatively low barriers to entry, making price increases and consumer loyalty difficult to achieve. Read more 

Management

Glenn Murphy has been CEO and chairman since 2007, joining Gap after a stint as the CEO of Canadian drugstore chain Shoppers Drug Mart. Although we prefer the CEO and chairman roles to be separate, we recognize that Murphy brings good retailing experience   Read more 

Profile

Gap is a specialty retailer that sells casual apparel for men, women, and children under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands. The company operates   Read more 

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