...Challenging Operating Environment: The Gap, Inc. operates in the challenged mid-tier, mall- based apparel sector, which struggles with the shift of discretionary spend to services and experiences, the lack of a strong product cycle, and market share gains by fast-fashion and off- price competitors and online-only players. Gap and its peers have seen volatile sales results and the need to use omnichannel investments and increased markdowns to drive volume. Weak Sales Continue: Comparable store sales (comps) have been weak recently with 2014 and 2015 comps of flat and negative 4%, respectively. YTD 2016 comps through December were down 2% despite recent initiatives to improve merchandise. Gap continues to see material traffic declines, and while traffic is a sector issue, Fitch Ratings believes these challenges somewhat reflect waning customer loyalty as product continues to disappoint. Gross Margins Remain Volatile: Gross margins fell to around the mid-36% range in 2015 from a peak around...
