The rating on San Francisco-based specialty apparel retailer The Gap Inc. (Gap) reflects Standard&Poor's Ratings Services' expectation that although margins will deteriorate further in the next few quarters, reflecting the company's limited ability to pass on the meaningfully higher cotton costs, credit measures will remain better than our expectations for the rating. Gap generates consistently good operating cash flow and its liquidity remains "strong" (as our criteria define the term). We view Gap's business risk profile as "fair." It reflects the intensely competitive nature of apparel retailing, especially as it relates to management's ability to improve the business fundamentals of its three major brands in the coming years. The company's good market position in casual apparel, geographic diversity,
