THE GAP, INC.

THE GAP, INC.- Financial and Strategic Analysis Review

Reference Code: GDRT29527FSA
Page 1



THE GAP, INC. - Financial and Strategic Analysis Review
Publication Date: 26-Dec-2013 Reference Code: GDRT29527FSA



Company Snapshot

Key Information
THE GAP, INC., Key Information
Web Address www.gapinc.com
Financial year-end February
Number of Employees 136,000
NYSE GPS
Source : GlobalData

Key Ratios
THE GAP, INC., Key Ratios
P/E 16.60
EV/EBITDA 8.95.00
Return on Equity (%) 39.22
Debt/Equity 43.05
Operating profit margin (%) 12.41
Dividend Yield 0.01
Note: Above ratios are based on share price as of 24-Dec-2013
Source : GlobalData

Share Data
THE GAP, INC., Share Data
Price (USD) as on 24-Dec-2013 38.61
EPS (USD) 2.33
Book value per share (USD) 6.25
Shares Outstanding (in million) 488
Source : GlobalData

Performance Chart
THE GAP, INC., Performance Chart (2009 - 2013)
Source : GlobalData
Company Overview

The Gap, Inc. (Gap) is a leading global specialty retailer. It
offers clothing, accessories and personal care products for
people of all age groups including men, women, children and
babies. The companhy offers its products under the Gap, Old
Navy, Banana Republic, Piperlime, and Athleta brands. The
product line of the company consists of casual apparel such
as denim, khakis and T-shirts; footwear, personal care
products, accessories and fashion apparel. The company
distributes its products through its retail stores, internet and
catalog stores. The company is also operates wholesale and
franchisee businesses.
SWOT Analysis

THE GAP, INC., SWOT Analysis
Strengths Weaknesses

Improved Financials

Strong Product Portfolio and
Brand Recognition

Wide Geographic Presence


Dependency on Third Party
Manufacturers

Product Recall

Opportunities Threats

Emerging Markets

Growing Opportunities in
E-Retailing

Expansion into New Markets


Changing Fashion Trends and
Pricing Pressure

Growing Counterfeit Products

Competitive Environment

Source : GlobalData

Financial Performance

The company reported revenues of (U.S. Dollars) USD
15,651.00 million during the fiscal year ended February 2013,
an increase of 7.57% over 2012. The operating profit of the
company was USD 1,942.00 million during the fiscal year
2013, an increase of 35.05% over 2012. The net profit of the
company was USD 1,135.00 million during the fiscal year
2013, an increase of 36.25% over 2012.

THE GAP, INC.






THE GAP, INC.- Financial and Strategic Analysis Review

Reference Code: GDRT29527FSA
Page 2


THE GAP, INC. - SWOT Analysis

SWOT Analysis - Overview
Gap is a specialty retailer of apparel, footwear and accessories. The company is engaged in operating 3,095 family apparel stores in
the US, Canada, the UK, France, Ireland and Japan. The company also has online and catalog stores. The companys broad product
portfolio and brand recognition and wide geographic presence provide strong foundation for its future growth. However, intense
competition and changing consumer behavior are the major areas of concern for the company.

THE GAP, INC. - Strengths
Strength - Improved Financials
Increase in the companys revenue not only helps achieve financial stability, but also provides the necessary internal funding for the
expansion of its operations further. During fiscal year February 2013, the companys revenue increased 7.6% to $15,651m, compared
to $14,549m in fiscal 2012. The companys operating income was $1,942m in 2013 as compared to $1,438m in 2012. It posted a net
income of $1,135m in 2013 as compared to $833m in 2012. The increase in revenue was primarily driven by the growth across its two
operating segments. This had a favorable impact on the companys profitability ratios. The company's operating margin was 12.40% for
the fiscal year 2013. During fiscal year 2013, Gap witnessed significant growth across some of its key profitability ratios. Gaps net profit
margin was recorded at 7.25% in fiscal year 2013, as against 5.72% in 2012. Furthermore, its return on capital employed, return on
assets, and return on fixed assets were 37.88%, 15.19%, and 58.17% in 2013, compared to 27.16%, 11.22%, and 46.19%, respectively
in 2012.

Strength - Strong Product Portfolio and Brand Recognition
The company's strong product portfolio and brand recognition ensures financial stability through a diversified customer base. Gap
through its retail and online stores engaged in providing a wide range of apparel and accessories for men, women and children. The
company markets its products under the well known brands, namely Gap, Old Navy, GapKids, babyGap, GapBody, Banana Republic,
and Piperlime. Under the Gap brand, the company provides denim, khakis and T-shirts, fashion apparel, accessories and personal care
products. The company also provides a wide collection of apparel and accessories under the brand names GapKids and babyGap.
Under the Old Navy brand, the company offers apparel, shoes and accessories for both children and adults. The company also
provides casual and tailored apparel, shoes and accessories for men and women under its Banana Republic brand. In addition, the
company also offers its products through its websites. The company, through its multiple store banners, caters to a wide range of
customers across the world.

Strength - Wide Geographic Presence
The company's wide geographic presence insulates it from the risk of operating in a single economy. Gap operates 3,095 stores across
North America, Europe and Asia. It also operates 312 franchise stores. In addition it has also entered into a number of franchising
agreements to distribute its products across several geographies. The companys franchised stores are located in Bahrain, Indonesia,
Kuwait, Malaysia, the Philippines, the Oman, Qatar, The Kingdom of Saudi Arabia, Singapore, South Korea, Turkey, the United Arab
Emirates, Greece, Romania, Bulgaria, Cyprus and Croatia. The company also operates its online stores through www.gap.com,
www.bananarepublic.com, www.oldnavy.com, and www.piperlime.com websites. The company's global presence enables it to build its
brand image and maintain its strong position in the market.

THE GAP, INC. - Weaknesses
Weakness - Dependency on Third Party Manufacturers
The company is highly dependent on the vendors outside the US, which may adversely affect its ability to meet any urgent
requirements. The company purchases private label and non-private label merchandise from approximately 1,000 vendors having
facilities in approximately 40 countries. During the fiscal year 2013, approximately 98% of the merchandise was produced outside the
US. These outside vendors require to comply with certain vendor conducts and environmental, labor, health, and safety standards in
domestic and international markets. Any noncompliance with the standards might delay the delivery of the goods and significantly affect
the company's reputation. Thus, the company's high dependence on third party manufacturers may have an adverse affect on its
business operations.

Weakness - Product Recall
The company's various product recalls not only generate substantial negative publicity about its products and business, but also
prevent commercialization of other future product candidates. In J uly 2012, Old Navy voluntarily recalled Toddler Girl Aqua Sock due to
slip and fall hazard. In April 2010, the company recalled its babyGap Marrakesh and Gap Outlet baby one-piece swimsuits . This recall
was mainly due to presence of a halter straps that were manufactured too short causing the plastic ring located at the center of the
swimsuit to press against the child's throat and obstruct the airway. This poses a strangulation hazard to the child.


THE GAP, INC. - Opportunities
Opportunity - Emerging Markets
Gap could be significantly benefited from expanding its business in new emerging markets, as it has plans to develop its market in
China, Russia, India and Brazil. According to recent IMF forecasts, the Chinese economy is expected to grow 8.2% in 2013, mainly due
THE GAP, INC.






THE GAP, INC.- Financial and Strategic Analysis Review

Reference Code: GDRT29527FSA
Page 3


to the increase in domestic demand. The Indian economy is expected to grow at 6% in 2013, supported by positive macroeconomic
indicators. The Indonesian economy would rank among the biggest economies in Southeast Asia by 2013. Growth in the East Asia and
Pacific region (especially China) as well as South Asia (especially India) has been resilient. China and India, with its huge population
base and increasing per capita income, has significant demand potential. It is expected that in future China will maintain a double digit
GDP growth rate and Indias GDP growth is expected to be in the range of 6-8%. Economic growth, combined with high and young
population and low per capita consumption, could lead to increased demand in the future. Additionally, factors like growing affluence,
increasing brand-consciousness and low penetration of organized retailers in these countries make them attractive destinations for
global retailers.

Opportunity - Growing Opportunities in E-Retailing
With the rising trend of e-commerce business, there is huge potential for the company to increase its profitability through its online
business. Now, more and more customers prefer to shop online and place their orders through credit cards, thereby avoiding the time
consuming journey and billing queues. The company through its online business offers a range of apparel, footwear and accessories
including most of the similar merchandise categories available in its stores. The rising popularity of online retailing concept could
provide ample of growth opportunities for the company to leverage upon.

The North America and European region witnessed a high growth in e-retail segment. According to the Census Bureau of the US
Department of Commerce, the US retail e-commerce sales in the second quarter 2013 were $64.8 billion, indicating an increase of
4.9% over the first quarter 2013. The US e-retail market is expected to reach $369.5 billion by 2017 from $231.3 billion in 2013.
Moreover, according to Internet World Stats as on December 31, 2011, the internet penetration in the world population stood at 32.7%,
compared to 28.7% in 2010 with a growth rate of more than 528.1% during 2000-2011. As of December 31, 2011, the US had 245.2
million internet users with the internet penetration rate of 78.3%. This changing trend encouraged many retailers to focus on the new
internet savvy customer segment and venture into this growing retail format. As the company already has a sound presence in internet
format, the company could further enhance its competitive position in the ecommerce market, which would help the company to
enhance its sales through brand awareness and user friendly features through its websites. Besides, it will save on the operating costs,
which are much lower in the online retail format as compared to physical store format.

Opportunity - Expansion into New Markets
As a part of its continuing global expansion strategy, Gap expands its operations into other countries. In 2013, Gap announced to open
its first franchise-operated Old Navy stores in the Philippines in 2014; its first Old Navy store in Shanghai, Mainland China in 2014;
launch Gap brand in Paraguay and Hungary; and to open as many as 20 more Old Navy stores in Japan by the end of 2013. In 2012,
Gap announced to open its first Gap Store in Brazil; first stand-alone store in Mexico; first store in New Yorks SoHo Neighborhood; and
first stores in Panama. In 2012, the company also expanded its first Old Navy store outside of North America; launched two new
locations in South Africa and announced its plan to introduce its brands to three additional Latin American countries, namely, Uruguay,
Colombia and Peru. During November 2010, the company opened its firsh Gap store in Italy. This new store is located on Corso Vittorio
Emanuele in Milans premier shopping district. It also entered into an agreement with Armin Systems Limited to bring Gap stores in
Thailand. The company also has renewed interest for a possible foray into India's specialty clothing market through possible venture
with Reliance Retail. The company's several initiatives to enter new markets may provide significant exposure to more diversified
customer base and strengthen its brand image.

THE GAP, INC. - Threats
Threat - Changing Fashion Trends and Pricing Pressure
Gap, which specializes in apparels and footwear, could get affected by rapidly changing fashion trends. An inherent characteristic of the
fashion apparel industry is the short life cycle of products, dependence on trends, the seasonality of sales and the susceptibility to
abnormal changes in weather conditions. Its business depends principally on the customer preferences and the changing trends. The
company has to adapt quickly to these changes to increase or maintain its business in the competitive apparel industry. Usually, Gap
takes the decisions relating to the product designs several months in advance and the customer acceptance cannot be measured. The
companys business could be at risk as it manufactures its clothes well in advance and the trends may change by the time the
merchandise reach the customers. Presently, all the retail players are facing the pricing pressure throughout the supply chain which
includes introduction of new or enhanced products at lower price; reduction of wholesale prices on existing products; increase in the
retailer demands for allowances, incentives and other forms of economic support and control over production and operating expenses.
Failure to anticipate, identify or react properly to changes in styles, trends, desired images or brand preferences, could have a material
adverse effect on the companys sales, financial condition and the results of its operations.

Threat - Growing Counterfeit Products
The company's business could be adversely affected due to the huge influx of counterfeit products across the globe. Such high
penetration of counterfeit merchandise may lower the sales of the company and adversely affect its profit margins. Moreover, as the
customers end up buying counterfeit products bearing the look-alike brand labels, the low quality of these counterfeits affects the
consumer confidence and also tarnishes the brand image of the genuine company. With global annual sales of around $500 billion, the
sales of counterfeit goods are expected to cross $2 trillion in sales by 2026. Besides, since 1982, the global trade in illegitimate goods
has increased from $5.5 billion to about $600 billion annually. The company is prone to these challenges and any under performance of
the counterfeit products will have a major effect on the company's revenues.

Threat - Competitive Environment
THE GAP, INC.






THE GAP, INC.- Financial and Strategic Analysis Review

Reference Code: GDRT29527FSA
Page 4


Gap operates in a highly competitive specialty apparel retail industry. It faces intense competition from local, national, and global
department stores, specialty and discount store chains, independent retail stores, and online businesses, which are dealing with similar
products. The company also faces significant competition from the local players in European, J apanese, and Canadian markets. The
company's franchisees also faces competition in the respective markets. Increasing global competition in the apparel retailing market
may significantly affect the company's market share in the future financial years.


NOTE:
* Sector average represents top companies within the specified sector
The above strategic analysis is based on in-house research and reflects the publishers opinion only