Home / Knowledge / News / Apparel/Garments / Fitch affirms Gap's rating outlook 'Stable'
Fitch affirms Gap's rating outlook 'Stable'
19
Mar '14
Fitch Ratings has affirmed the 'BBB-' Issuer Default Rating (IDR) for The Gap, Inc. (Gap). The Rating Outlook is Stable. The company had $1.4 billion of debt outstanding at fiscal year-end Feb. 1, 2014. 
 
KEY RATING DRIVERS
The rating is supported by Gap's improved operating results over the past two years, strong free cash flow after dividends (FCF), and growth opportunities in its online business, emerging markets and newer retail concepts. These factors are balanced against its mature businesses in North America, declining mall traffic, and some underlying fashion risk.
 
Gap posted a second year of solid results in 2013, when comparable store sales were up 2%, following a 5% increase in 2012. This growth reflected strong customer response to the company's apparel offerings and healthy 21% growth in online sales offsetting weakness in the company's international results due primarily to declines in the Canadian Dollar and Japanese Yen. 
 
Comp sales growth slowed to 1% in the second half of 2013, and will likely track at or near that level in 2014, driven by double digit growth in online sales (which is currently adding approximately 3% to the consolidated comp), and modestly negative store level comps.
 
Top-line sales will also be driven by square footage growth of around 2.5% in 2014, which represents the second year of expansion (0.8% growth in 2013) following square footage declines from 2008 - 2012 when the company rationalized its North American store base. 
 
Expansion is focused in Asia and emerging markets, with the planned addition of 30 new Gap stores in China, 25 Old Navy stores in Japan, as well as 30 new Athleta stores in the U.S. Fitch expects Gap will continue to grow its square footage at a low single digit pace going forward.
 
Gap's gross margin rate declined by 40bps (basis points) during 2013, reflecting difficult competitive conditions in the second half, and particularly during the holiday season. This was offset by a 130bp reduction in the SG&A ratio as the company tightly managed its operating expenses. The result was a 90bp improvement in the EBIT margin to 14.0% from 13.1% in 2012, and Fitch expects EBIT margins will be relatively flat at around 14% in 2014.
 
Financial leverage (adj. debt/EBITDAR) was flat at 2.9x at year-end 2013, as growth in EBITDA to $2.7 billion from $2.5 billion in 2013 was offset by modestly higher adjusted debt levels due primarily to higher rent expense (which is capitalized at 8 times). Leverage is expected to be relatively steady going forward at around 3x as growth in EBITDA is expected to offset the impact of higher rent expense from international expansion.
 
Gap has maintained solid liquidity, with an unused $500 million revolver and cash and cash equivalents of $1.5 billion as of year-end, compared with management's stated cash target of $1.2 billion. In addition, the company generated strong FCF after dividends of $714 million in 2013. Fitch expects FCF to range from $700 - $800 million in 2014, and that it will be directed to share repurchases. 
 
The company may also use some of its excess balance sheet cash for share repurchases, but is nonetheless expected to retain sufficient cash to handle its seasonal working capital needs without having to tap its $500 million revolver.

Fitch Ratings, Inc.


Must ReadView All

India mulls new schemes for jobs, textile clusters

Apparel/Garments | On 25th Apr 2018

India mulls new schemes for jobs, textile clusters

India is mulling over alternative schemes for jobs and manufacturing...

Kraig gets approval for Vietnamese subsidiary firm

Textiles | On 25th Apr 2018

Kraig gets approval for Vietnamese subsidiary firm

Kraig Biocraft Laboratories, Inc., the leading developer of spider...

Courtesy: ITMA Asia

Textiles | On 25th Apr 2018

ITMA Asia + CITME 2018 attract global textile companies

The sixth edition of ITMA ASIA + CITME 2018 has received strong...

Interviews View All

Headhonchos
Indian fashion industry

Cotton consumption will keep growing in the Indian fashion industry

Smita Murarka
Amanté

‘There is huge demand in the Indian lingerie market for non-wired styles.’

Poojaa Kumar Deepak
Zeven

Zeven's performance sports apparel is designed for the Indian body type,...

Tejas N Patel, Navin D Patel

Founded in 1999 by Navin Patel in the name of Tejas Fabrics with 100...

Liz Manning

<div><b>Liz Manning</b>, Business Development Manager at Catexel, has...

Sugandha Bhardwaj

<div>New Delhi-based Brinjal Designs Pvt Ltd manufactures home furnishing...

Urs Stalder
Sanitized AG

Urs Stalder, CEO, Sanitized AG, talks about the increasing use of hygiene...

Marcel Alberts
Eurofibers

Coating at a fibre level is a practice not usually seen in the...

Eric Scholler
Groz-Beckert

The Indian market has huge potential in technical textiles, and by far,...

Prathyusha Garimella
Prathyusha Garimella

Hyderabad-based designer <b>Prathyusha Garimella</b> is known for blending ...

Pranav Mishra
Huemn

Designers Pranav Mishra and Shyma Shetty’s Huemn is known for its...

Anisha Chaudhari
Threads & Shirts

Threads &amp; Shirts is a freshly-tailored concept providing men/women a...

Press Release

Press Release

Letter to Editor

Letter to Editor

RSS Feed

RSS Feed

Submit your press release on


editorial@fibre2fashion.com

Letter To Editor






(Max. 8000 char.)

Search Companies





SEARCH

Leave your Comments


April 2018

Subscribe today and get the latest update on Textiles, Fashion, Apparel and so on.

news category


Related Categories:

Planning to Take the Leap towards
Sustainability?

Do you see sustainability as a route to business growth?

Yes No

Do you think the sustainability space has the needed tools and resources available for a business to lead change?

Yes No

Active Poll

Do you see sustainability as a route to business growth?

Yes
69.9%
No
12.6%
Skip
17.5%

Total Votes: 103

Do you think adopting a sustainable approach will be a profitable move for your business?

Yes No

Active Poll

Do you think the sustainability space has the needed tools and resources available for a business to lead change?

Yes
63.1%
No
29.1%
Skip
7.8%

Total Votes: 103

Do you want the world to know about your sustainability journey and your business’ environmental footprint?

Yes No

Active Poll

Do you think adopting a sustainable approach will be a profitable move for your business?

Yes
87.4%
No
8.7%
Skip
3.9%

Total Votes: 103

Thanks for your valuable feedback. Claim your free latest sustainability e-book.

Active Poll

Do you want the world to know about your sustainability journey and your business’ environmental footprint?

Yes
82.5%
No
7.8%
Skip
9.7%

Total Votes: 103


E-News Insight
Subscribe Today and Get the
Latest News Update in Your Mail Box.
Advanced Search