The ratings on San Francisco, Calif.-based The Gap reflect the company's strong business position in casual apparel, its geographic diversity, and strong cash flow. These factors are tempered by management's challenge of continuing to improve the business position of its three brands in an industry that is intensely competitive. 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 a significantly improved operating performance. The Gap's operating margin rose to 22.2% in 2004, from 21.5% in the prior-year period and a low of 14% in 2000. Standard & Poor's Ratings Services believes that the company has the opportunity to further improve operating performance over the
