Question

from your personal research, articles and materials about the GAP. Inc, develop a comprehensive and well documented Essay answering the following questions about GAP.Inc
1. GAP's Corporate strategy (past and futur)?

2.howz company has been performing last 3 years (Trends, problems, success)?

3. common size income statement for 3 years( include written analysis of trends)?

4. stock price trends: do you expect stock price to increase, stay flat or decline over next six months why ?

5. should an investor buy, sell or hold this stock ?

Answer 1

GAP'S Corporate strategy:

In the global market of fashion, style and accessories the business strategy of the company can be classified as Cost Leadership which has now been shifted to GPS ( Growth-Perform-Succeed). The retailer offers stylish and fashionable clothing items and accessories at competitive prices. Its strategy is associated with offering people the opportunities of being cool & stylish for affordable prices.GAP competitive advantage has been traditionally associated with innovative casual design of clothing item and accessories and the variety of choices that enables the opportunity for self reflection for a wide range of customer segment. With new strategy, it starts with a new performance standard followed by setting fewer goals at the beginning involves regular monthly discussion of performance and ends with an allocation of rewards. For the past few years, the fashion retailer has been facing challenges in terms of maintaining its US and global market share and ensuring the growth of revenues. GAP business strategy to deal with the issue of declining sales includes the following:

• Focusing on its GAP Core products that contributed to the global success of the company.
• Expanding its investment in online and digital
• Advantaged Real estate portfolio Which includes shifting its focus on where customers are shopping and simultaneously increasing its presence in its more profitable value and online channels while continuing to shed square footage in lower productivity specialty locations.
• Start to sell its product on amazon and other third party.
• International market Expansion which includes taking advantage of GAP's Inc scale creates an opportunity to drive greater efficiency speed and profitability. The company expects expense saving over the next three years by better leveraging its size and scale.

Companies Performance

• As per reports company announced improve growth prospects by Specialty Fleet Restructuring and GAP brand revitalization which includes the closure of about 230 GAP Specialty stores over the next 2 years. It also estimated an annualized loss of approximate $625 million as a result of these store closures and will result in annualized pretax savings of about $90 million.
• Brand Revitalization includes that the company is working on multiple initiatives to revitalize the gap brand by re-engaging with customers and expanding its loyal customer base, leveraging the multigenerational democratic appeal of the brand, Improving the product by recapturing the traditional gap attributes of style, quality, fit and value is a top priority.
• The Company reported fiscal year 2018 diluted earning per share of $2.59 compared with fourth quarter fiscal year 2017 reported diluted earning per share of $2.14 or $2.13 on adjusted basis and expects diluted earning per share for 2019 to be in range of $2.11 million to $2.26 million.
• For fiscal year 2018 the company's comparable sales were flat compared with a 3% increase last year and expects to be flat to up slightly during fiscal year 2019.
• For fiscal year 2018 gross profit was $6.32 billion, an increase of 4% as compared with last year,
• For fiscal year 2018 gross margin was 38.1% a decrease of 20 basis points compared with last year
• For fiscal year 2018 operating margin was 8.2% a decrease of 110 basis points compared with operating margin of 9.3% last year.
• For Fiscal year 2018 the company repurchased 13.8 million shares for $398 million and ended fiscal year 2018 with 378 million share outstanding and expects to repurchase approx $200 million in fiscal year 2019.
• The company paid a dividend of $02425 per share during the fourth quarter of fiscal year 2018 an increase of over 5% compared with last year in addition on february 2019 the company announced that its Board of Director authorized a first quarter dividend of $0.2425 per share.
• The company ended the fourth quarter of fiscal 2018 with $1.4 billion in cash and cash equivalents  and restricted cash as well as $288 million of short term investments.
• Fiscal year 2018 capital expenditure were $705 million and expects spending $750 on capital spendings in fiscal year 2019.
• The company ended fiscal year 2018 with 3666 store locations in 43 countries of which 3, 194 were company operated and expects to close 50 company operated stores during fiscal year 2019.

As per above analysis we expect that the company stock price shall increase over next six months since company is working hard in eliminating extra cash outflow in terms of capital spending on company operated stores which thus directing towards cost savings and also because is shifting its mindset toward fulfillment of customer need in terms of shopping trends that has been shifted more on online or E commerce websites.

Investor decision should be based on the Following before buying selling or holding the suock which are as follows:

• Increasing sales trends- Check to see company is growing its sell trends and if so, whether the sales growth is sustainable or related to one time event.In general, those company in the $100 million to $1 billion sales range should grow more than 10% annually larger companies can be expected to grow by at least 3% in a yeaar to be of interest.
• Improving margin- A company's margin generally improve or deteriorated depending on how well it is managed. If the sales line is going up but costs are going up faster something is there which need to b looked for. It could be because the company is entering into anew business launching a new product or expanding its foot print or it may be because of poor management of company.
• Stock buy back programs: When a company uses its cash to buy back its own stock its usually a good sign that management believes that stock is undervalued and it wants to improve financial ratios and boost earnings.
• New Products: It often garner the most attention from consumers and investors. This often helps to move the share price higher in the near terms and company probably spent a huge amount on its R&D and promotions which take whole lot of money.
• Technical indicators: First, look at the stock chart for the last year and last five years, Check for any seasonal variations in the stock price. Determine the trend in which this stock is trending.
• The Bottom line: Zeroing is the key information which helps the investor to avoid a rash decision of buying, selling and holding its stock.

Considering the above guideline for the decision to be made it is preferable to buy new stock and to hold the currently held shares in the company since the company is showing positive trend in all the above mentioned points.