Good business position in specialty apparel; Strong cash flow; and Excellent liquidity. Participation in the competitive retail industry; Fashion risk and cyclicality inherent in the specialty apparel industry; Difficulty in maintaining customer loyalty; and History of declining same-store sales and EBITDA. Ratings on San Francisco-based The Gap Inc. reflect the challenge to management to improve the business fundamentals of its three brands in an intensely competitive industry and to strengthen credit-protection measures. These factors are partially offset by the company's good market position in casual apparel, geographic diversity, and strong cash flow. The Gap's operating performance has been on a decline for the past two years. Operating margins declined to 17.1% in 2006, from 20.8% a year earlier and 22.4%
