The Gap Inc. - UW Stock Pitch Competition

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 • • • •

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

Lemons LLP

Competitive Advantage “Wear our passion” Innovative designs Margin maximization Focused branding Socially responsible Global Expansion

Lemons LLP

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

Lemons LLP

Stock Performance

S&P500

Lemons LLP

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 Lemons LLP

Investment Risk • • • • •

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