The ratings on San Francisco-based The Gap Inc. 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, resulted in significantly improved operating performance from 2002 to 2004. However, the company's operating margin fell to 20.7% in 2005 from 22.4% in 2004 due to lack of sales leverage. Same-store sales trends have been negative since June 2004 as consumers have not responded well to its products. Currently,
