The ratings on San Francisco, Calif.-based The Gap Inc. reflect management's challenge to improve the business fundamentals of its three brands in an industry that will continue to experience intense competition. This is offset, in part, by the company's strong business position in casual apparel, geographic diversity, and strong cash flow. Management's initiatives to improve product quality and assortment, store execution, and inventory management, as well as the rationalization of its store base, have resulted in significantly improved operating performance. The Gap's operating margin rose to 22.5% in the trailing 12 months ended May 1, 2004, up from 20.3% in the same year-ago period and a low of 14% in 2000. Standard & Poor's Ratings Services believes that the company
