The Gap Inc.
Michael Yang
Lemons LLP
Executive Summary
• Strong multi brand platform
• Valuation
• Continued global expansion
BUY
52 wk
P/E
EV/EBITDA
DCF
30
40
50
60
70
80
90
Lemons LLP
Overview
• Global clothing and accessories retailer founded
in 1969 in San Francisco.
• Largest speciality retailer in US
• 135,000 employees and 3,076 stores worldwide
Lemons LLP
Industry Outlook
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•
•
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Consumer empowerment is quickly decreasing brand loyalty
Fast fashion continues to be the dominant strategy
Consumers spend through multiple channels
Increased discounting to drive sales
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Competitive Advantage
“Wear our passion”
Innovative designs
Margin maximization
Focused branding
Socially responsible
Global Expansion
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Key Facts
Customers: Gap brands appeal to the entire market while
focusing on trendy twists of classic designs for all ages while
focusing on 18 to 35
Products: Gap leverages multiple price points to maximize
price potential of products to avoid sale merchandise
Competitors: Gap’s fresh designs avoid isolating any
consumer or focusing on single markets
Catalysts:
• Old Navy in China
• Foothold in Brazil
• Development of Intermix and Athleta
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Stock Performance
S&P500
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DCF Valuation
Revenue (2018)
5 year Rev. CAGR
19,774M
1,255
1,031
5%
855
Gross Margins
47%
588
WACC
9.64%
278
Enterprise Value
23,212M
Equity Value
22,009M
2013E 2014E 2015E 2016E 2017E
Discounted Cash Flow Value of $49.47
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Investment Risk
•
•
•
•
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Falling out of favour
Failure to expand into global markets
Increased operating costs
Shrinking margins
Failure to adapt to trends
Lemons LLP
Recommendation
Product
Offerings
Target
Price
$50
Global
Expansion
Valuation
22.6% Growth in 12 months
Lemons LLP