Gap Inc.GPS

Morningstar Rating

Stock Research and Analysis

by Brady Lemos

Gap's turnarounds efforts are still yielding mixed results. Management is doing a fine job controlling expenses and inventories, and despite consistently falling same-store sales, margins are holding up nicely. However, eventually Gap will have to boost Read more

Bulls Say

Despite weak sales, Gap generates healthy profit margins and strong cash flows, thanks to prudent expense management.

The company's brands are widely recognized. Because of this, shoppers haven't completely abandoned the stores, despite a number of fashion fumbles.

We think management is making good use of cash by buying back shares, paying a modest dividend, and reducing debt.

Gap's balance sheet is in good condition, with no long-term debt and a healthy cash balance. Read more

Bears Say

Apparel retailing is highly competitive and has relatively low barriers to entry. Gap can do little to stop rivals from mimicking its style.

Comparable-store sales have been weak for more than four years, suggesting that the retailer has struggled to reconnect with consumers.

Gap and Old Navy have little room to expand domestically, now that each operates over 1,000 stores in North America.

Mass merchants like Target TGT and Kohl's KSS have become formidable competitors of Old Navy. Read more

Strategy

Faced with declining sales, Gap is focused on expense and inventory control in order to maintain healthy margins. Since the beginning of 2007, the company has cut operating expenses by about 15% ($650 Read more

Management

Glenn Murphy has been CEO and chairman since 2007. Prior to joining Gap, Murphy served as CEO of Canadian drugstore chain Shoppers Drug Mart. While Murphy joined Gap with substantial retailing experience, he lacks experience in the apparel business. Read more

Profile

Gap is a specialty retailer with stores that sell casual apparel for men, women, and children under private-label brand names. These brands are marketed under the Gap, GapKids, Read more

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