1. Gap, Inc. (GPS $18.00) Christopher Letts, Kevin Smith, and Brian Burnham

2. Tonight’s Objectives Overview of GAP Inc. Industry Overview Competition Growth Prospects Concerns Recommendation

3. Company Overview Gap Inc. is one of the largest specialty retailers in the world. Gap Inc. operates four well known clothing brands. –Gap, Banana Republic, Old Navy, Forth & Towne –Founded in 1969 in San Francisco –More than 3,000 Stores worldwide (2800 stores in the U.S., 250 Stores in Europe, German, and Japan) Mission: Gap Inc. is a brand-builder. We create emotional connections with customers around the world through inspiring product design, unique store experiences and compelling marketing.

4. Company Overview Focus on continuing to expand market –Forth and Towne brand introduced in 2004 targeting women over the age of 35 Focus on cost control –Clothing is made through a 5 phase process –Design and Merchandising,Planning and Sourcing,Production and Marketing,Distribution, Sales and Analysis

5. Company Overview

6. The Competition Large market of retail stores Abercrombie and Fitch; Limited; Express; American Eagle, etc. Comparing Gap to the competition: –Last month all retail sales were down. Gap sales were down 3% however comparable stores were down 6%

7. Industry Overview

8. Specialty Retail Stores –Very large, Near saturation Retail stores are very abundant in the U.S. market place and have experienced slowing sales the past couple years

9. Growth Prospects Gap is currently at the lower end of its 52wk range. –Current Price around $18.00; Target Price $23.50 –Projected 10% range growth over next several years Company has large cash balance –Tremendous free cash flow provides the company with flexibility regarding its strategic long-term options and make the shares compelling from a dividend, free cash flow and balance sheet perspective.

10. Prospects (contd.) New line still unproven –Fourth and Towne line just released targeting baby boomer women, ages 35+, market untested Should have debt free balance sheet by FY2008 Long-term growth should be solid due to expansion in international market –Five new test stores and 2 Banana Republics being opened in Tokyo

11. Prospects (contd.) Management attention to corporate governance and social responsibility reduces volatility Gap has continually expanded their brand names and target demographics –Gap, Baby Gap, Old Navy, Banana Republic, Fourth and Townes

12. Negatives Higher Risk (beta 1.84) Operating in Saturated Market –Needs meaningful growth to support shares long term Rising interest rates have adversely affected specialty apparel retailers Industry risks include: Fashion, markdowns and inventory risk

13. Our Recommendation Recommendation: Buy –New prospects with Forth and Towne and more expansion in the international market will help The Gap in their efforts to grow in a fiercely competitive environment –Gap’s balance sheet is saturated with cash –Share price is well valued relative to peers –Effective management will better position Gap for future success and shareholder return