Gap Inc (NYSE: GAP)

Sector: Consumer Cyclical Industry: Apparel Retail CIK: 0000039911
Market Cap 10.00 Bn
P/B 2.74
P/E 11.75
P/S 0.65
ROIC (Qtr) 8.82
Div Yield % 2.41
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...

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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/ 175.80 Bn 34.34 2.98 13.19 Bn
2 ROST Ross Stores, Inc. 58.85 Bn 28.21 2.67 5.19 Bn
3 LULU lululemon athletica inc. 25.43 Bn 14.61 2.30 1.76 Bn
4 BURL Burlington Stores, Inc. 18.26 Bn 32.57 1.63 5.94 Bn
5 GAP Gap Inc 10.00 Bn 11.75 0.65 5.52 Bn
6 URBN Urban Outfitters Inc 7.11 Bn 14.53 1.18 1.18 Bn
7 ANF Abercrombie & Fitch Co /De/ 6.17 Bn 11.82 1.19 1.13 Bn
8 BOOT Boot Barn Holdings, Inc. 5.78 Bn 27.75 2.79 0.67 Bn

Industry comparisons

Current Valuation Value Ind Avg Percentile
EV to Assets EV to Assets 1.08 1.35
EV to Cash from Ops. EV/CFO 10.95 8.18
EV to Debt EV to Debt 2.43 4.33
EV to EBIT EV/EBIT 10.67 -60.97
EV to EBITDA EV/EBITDA 8.16 6.53
EV to Free Cash Flow [EV/FCF] EV/FCF 17.04 22.99
EV to Market Cap EV to Market Cap 1.34 2.06
EV to Revenue EV/Rev 0.88 1.11
Price to Book Value [P/B] P/B 2.74 3.23
Price to Earnings [P/E] P/E 11.75 195.16
Dividend Metrics Value Ind Avg Percentile
Dividend Coverage Ratio Div Coverage (Qtr) 3.53 0.88
Dividend Payout Ratio % Div Payout % (Qtr) 28.50 12.58
Dividend per Basic Share Div per Share (Qtr) 0.65 0.36
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr) 30.53 16.33
Interest Coverage Int. cover (Qtr) 14.27 13.58
Growth Metrics Value Ind Avg Percentile
Capex Growth (1y) % Capex 1y % (Qtr) 5.41 -5.40
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr) 14.88 89.63
Dividend Growth (1y) % Div 1y % (Qtr) 7.50 1.25
EBIAT Growth (1y) % EBIAT 1y % (Qtr) 2.49 13.95
EBITDA Growth (1y) % EBITDA 1y % (Qtr) 4.85 -16.93
EBIT Growth (1y) % EBIT 1y % (Qtr) 6.89 10.85
EBT Growth (1y) % EBT 1y % (Qtr) 7.85 6.10
EPS Growth (1y) % EPS 1y % (Qtr) 2.73 10.94
FCF Growth (1y) % FCF 1y % (Qtr) -29.06 -129.32
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr) -0.33 -1.75
Liquidity Ratios Value Ind Avg Percentile
Asset Utilization Ratio Asset Util Ratio (Qtr) 1.24 1.40
Cash Payout Ratio Cash Payout (Qtr) 0.15 0.06
Cash Ratio Cash Ratio (Qtr) 0.69 0.38
Current Ratio Curr Ratio (Qtr) 1.72 1.59
Debt to Equity Ratio Debt/Equity (Qtr) 1.51 1.31
Interest Cover Ratio Int Coverage (Qtr) 14.27 13.58
Times Interest Earned Times Interest Earned (Qtr) 14.27 13.58
Profitability Value Ind Avg Percentile
EBITDA Margin % EBITDA Margin % (Qtr) 11.50 2.72
EBIT Margin % EBIT Margin % (Qtr) 8.22 -1.70
EBT Margin % EBT Margin % (Qtr) 7.64 -2.76
Gross Margin % Gross Margin % (Qtr) 41.00 40.52
Net Profit Margin % Net Margin % (Qtr) 5.60 -4.02