Gap Inc (GAP) Stock Analysis and Metrics

Sector: Consumer Cyclical Industry: Apparel Retail CIK: 0000039911

Market Cap 11.39 Bn

P/B 4.52

P/E 14.10

P/S 0.73

ROIC (Qtr) 8.82

Div Yield % 3.85

Rev 1y % (Qtr) 2.95

Total Debt (Qtr) 5.52 Bn

Debt/Equity (Qtr) 1.51

About

Gap Inc., listed on the New York Stock Exchange under the ticker symbol GPS, is a prominent player in the global clothing and accessories retail industry. Founded in 1969 and headquartered in San Francisco, California, the company has built a reputation for offering a wide range of apparel, accessories, and personal care products. It operates in over 3,000 stores worldwide, with a significant presence in the United States, Canada, Japan, and Taiwan. The company's retail operations are complemented by e-commerce platforms and franchise stores. Gap...

Gap Inc., listed on the New York Stock Exchange under the ticker symbol GPS, is a prominent player in the global clothing and accessories retail industry. Founded in 1969 and headquartered in San Francisco, California, the company has built a reputation for offering a wide range of apparel, accessories, and personal care products. It operates in over 3,000 stores worldwide, with a significant presence in the United States, Canada, Japan, and Taiwan. The company's retail operations are complemented by e-commerce platforms and franchise stores.

Gap Inc.'s business model is centered around the sale of its diverse product range, which caters to a wide variety of customers. The company's portfolio includes the value-oriented Old Navy, the premium Gap, the luxury Banana Republic, and the premium fitness brand Athleta. Each brand has a distinct identity and appeals to different customer segments, contributing to Gap Inc.'s broad customer base.

Old Navy, a North American value apparel brand, democratizes fashion by offering on-trend products at affordable prices. Gap, on the other hand, is an authority on modern American style, with a range of apparel and accessories catering to adult and children's markets. Banana Republic is a premium lifestyle retailer that offers high-quality, versatile women's and men's wear, as well as home designs. Athleta, a premium fitness and lifestyle brand, focuses on empowering women through innovative design and technical features in its women's and girls' collections.

Gap Inc.'s strong brand portfolio, global reach, and adaptability are its key competitive advantages. The company operates in a highly competitive global apparel retail market, but its focus on quality, style, and customer service has enabled it to maintain a robust market position. Despite the intense competition, changing consumer preferences, and global economic uncertainty, Gap Inc. has been successful due to its continuous investment in its business and enhancement of the customer experience.

Gap Inc.'s customer base is diverse, with customers from various age groups and backgrounds. Its products cater to a wide range of customers, from young children to adults. Old Navy is particularly popular among families, while Gap and Banana Republic cater to a more affluent demographic. Athleta targets women who lead active lifestyles.

The company's brand names and trade names include Old Navy, Gap, Banana Republic, and Athleta. These names are synonymous with quality, style, and affordability, and they have helped Gap Inc. establish a strong presence in the global apparel retail market.

Gap Inc. faces various challenges, including intense competition, changes in consumer preferences, and global economic uncertainty. The company is also subject to regulatory requirements and laws, such as labor laws, tax laws, and environmental regulations. However, Gap Inc.'s robust brand portfolio, global reach, and adaptability enable it to navigate these risks and maintain its strong market position.

Price action

Investment thesis

Bull case

Healthy cash reserves of 2.26B provide 3.60x coverage of short-term debt 629M, demonstrating strong liquidity position and minimal refinancing risk.
Operating cash flow of 1.22B provides exceptional 13.90x coverage of interest expenses 88M, showing strong debt service capability.
Robust free cash flow of 786M exceeds capital expenditure of 437M by 1.80x, indicating strong organic growth funding capability.
Robust tangible asset base of 12.37B provides 5.24x coverage of working capital 2.36B, indicating strong operational backing.
Tangible assets of 12.37B provide robust 11.19x coverage of other current liabilities 1.10B, indicating strong asset backing.

Bear case

Operating cash flow of 1.22B barely covers its investment activities of (443M), with a coverage ratio of -2.76, indicating heavy reliance on external financing for growth which may not be sustainable in a tighter credit environment.
Operating cash flow of 1.22B provides thin coverage of dividend payments of (241M) with a -5.07 ratio, suggesting potential dividend sustainability issues if operational performance deteriorates.
Operating earnings of 1.26B show weak coverage of depreciation charges of 497M, with a 2.53 ratio indicating high capital intensity and potential reinvestment needs.
High depreciation of 497M relative to operating cash flow of 1.22B, which is 0.41x suggests significant maintenance capital requirements affecting free cash flow.
Operating cash flow of 1.22B is outpaced by equity issuance of (204M) (-6 ratio), indicating concerning reliance on equity markets for funding operations.

Peer comparison

Companies in the Apparel Retail

S.No.	Ticker	Company	Market Cap	P/E	P/S	Total Debt (Qtr)
1	TJX	Tjx Companies Inc /De/	258.23 Bn	187.23	12.14	13.19 Bn
2	ROST	Ross Stores, Inc.	72.84 Bn	60.07	5.37	5.19 Bn
3	LULU	lululemon athletica inc.	20.56 Bn	11.81	1.86	1.76 Bn
4	BURL	Burlington Stores, Inc.	19.19 Bn	34.23	1.71	5.94 Bn
5	GAP	Gap Inc	11.39 Bn	14.10	0.73	5.52 Bn
6	URBN	Urban Outfitters Inc	6.47 Bn	13.23	1.08	1.18 Bn
7	BOOT	Boot Barn Holdings, Inc.	5.75 Bn	26.25	2.65	0.70 Bn
8	ANF	Abercrombie & Fitch Co /De/	4.83 Bn	9.24	0.93	1.13 Bn

Industry comparisons

Current Valuation	Value	Ind Avg
EV to Assets EV to Assets	0.95	1.40
EV to Cash from Ops. EV/CFO	7.58	10.76
EV to Debt EV to Debt	2.13	4.34
EV to EBIT EV/EBIT	8.60	-65.50
EV to EBITDA EV/EBITDA	6.02	7.78
EV to Free Cash Flow [EV/FCF] EV/FCF	14.06	15.40
EV to Market Cap EV to Market Cap	1.03	2.07
EV to Revenue EV/Rev	0.75	1.41
Price to Book Value [P/B] P/B	4.52	6.30
Price to Earnings [P/E] P/E	14.10	240.04

Dividend Metrics	Value	Ind Avg
Dividend Coverage Ratio Div Coverage (Qtr)	3.53	0.87
Dividend Payout Ratio % Div Payout % (Qtr)	28.50	12.36
Dividend per Basic Share Div per Share (Qtr)	0.65	0.36
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr)	30.53	14.72
Interest Coverage Int. cover (Qtr)	14.27	9.50

Growth Metrics	Value	Ind Avg
Capex Growth (1y) % Capex 1y % (Qtr)	5.41	2.00
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr)	14.88	97.51
Dividend Growth (1y) % Div 1y % (Qtr)	7.50	4.12
EBIAT Growth (1y) % EBIAT 1y % (Qtr)	2.49	-5.24
EBITDA Growth (1y) % EBITDA 1y % (Qtr)	4.85	-28.04
EBIT Growth (1y) % EBIT 1y % (Qtr)	6.89	-4.11
EBT Growth (1y) % EBT 1y % (Qtr)	7.85	-9.48
EPS Growth (1y) % EPS 1y % (Qtr)	2.73	-7.53
FCF Growth (1y) % FCF 1y % (Qtr)	-29.06	-177.06
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr)	-0.33	-2.43

Liquidity Ratios	Value	Ind Avg
Asset Utilization Ratio Asset Util Ratio (Qtr)	1.24	1.42
Cash Payout Ratio Cash Payout (Qtr)	0.15	0.06
Cash Ratio Cash Ratio (Qtr)	0.69	0.44
Current Ratio Curr Ratio (Qtr)	1.72	1.64
Debt to Equity Ratio Debt/Equity (Qtr)	1.51	1.24
Interest Cover Ratio Int Coverage (Qtr)	14.27	9.50
Times Interest Earned Times Interest Earned (Qtr)	14.27	9.50

Profitability	Value	Ind Avg
EBITDA Margin % EBITDA Margin % (Qtr)	11.50	1.59
EBIT Margin % EBIT Margin % (Qtr)	8.22	-10.83
EBT Margin % EBT Margin % (Qtr)	7.64	-4.08
Gross Margin % Gross Margin % (Qtr)	41.00	41.09
Net Profit Margin % Net Margin % (Qtr)	5.60	-5.43

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