Gap, Inc'

1
Gap, Inc.

• (GPS 18.00)
• Christopher Letts, Kevin Smith, and Brian Burnham

2
Tonights Objectives

• Overview of GAP Inc.
• Industry Overview
• Competition
• Growth Prospects
• Concerns
• Recommendation

3
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 marketing.

4
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

5
Company Overview
6
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

7
Industry Overview
8
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

9
Growth Prospects

• Gap is currently at the lower end of its 52wk
  range.
• Current Price around 18.00 Target Price 23.50
• Projected 10 range growth over next several
  years
• 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.

10
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 FY2008
• Long-term growth should be solid due to expansion
  in international market
• Five new test stores and 2 Banana Republics being
  opened in Tokyo

11
Prospects (contd.)

• Management attention to corporate governance and
  social responsibility reduces volatility
• Gap has continually expanded their brand names
  and target demographics
• Gap, Baby Gap, Old Navy, Banana Republic, Fourth
  and Townes

12
Negatives

• 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

13
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
• Gaps 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