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% in 12 months ended May 3, 2008, from 18.9% at year-end February 2008. Although profitability improved, Standard&Poor's Ratings Services remains concerned about The Gap's ability to revive sales. Negative sales trends continued into the first quarter ended May 3,
