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 have led to improved operating margins of 21.3% for 12 months ended Oct. 25, 2008, from 18.9% at year-end February 2008. Although profitability has improved, Standard&Poor's Ratings Services remains concerned about The Gap's ability to revive sales. Management's revised merchandise and marketing initiatives have not resonated
