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 special apparel industry; Difficulty in maintaining customer loyalty; and History of declining same-store sales and EBITDA. The 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 maintain satisfactory credit-protection measures. The company's good market position in casual apparel, geographic diversity, and strong cash flow partially offset these factors. The Gap's operating performance has been on a decline for the past two years. However, tight inventory management and cost control contributed to operating margins improving to 19.7%
