Domain: Finance
Question:
An earnings call deck is being prepared for Gap Inc. (GPS) for FY2025. The CFO has requested that the materials include a peer evaluation to benchmark Gap’s performance against the broader retail apparel industry. The peer group under consideration includes Abercrombie & Fitch Co (ANF), Urban Outfitters (URBN), and American Eagle (AEO). The analysis should cover the points mentioned below: 

-- Identify the year-over-year changes (from FY2024 to FY2025) in revenue, gross margin, operating expenses margin, and net income for Gap Inc. Comment on how YoY changes in Gap’s EBIT compare to the peer group.

-- Calculate the FY2025 free cash flow for each of the companies. Comment on Gap’s FCF in comparison to the peer average and identify the key driver(s) responsible for Gap’s FCF. Additionally, use the FCF productivity ratio to assess the liquidity of each company, and compare Gap’s productivity ratio to the peer average. 

-- Create a current equity value to EV bridge for each company. Comment on Gap’s EV in comparison to the peer group and peer average. Calculate key trading multiples including EV/Revenue, EV/EBIT, and P/E multiple for each company. Determine whether Gap’s EV/Revenue and P/E multiples sit above or below the peer average. Allocate at least one key driver to EV/Revenue and P/E multiple to explain Gap’s multiples as compared to its peers.

Assume the following stock prices (as of August 29, 2025): Gap Inc. (GPS) = $22.01, Abercrombie & Fitch Co (ANF) = $93.53, Urban Outfitters (URBN) = $67.07, and American Eagle (AEO) = $12.94 

All $ amounts will be in millions and should be stated once in the response as a headline, except for share prices and EPS data. Round all $ figures to the nearest whole numbers, except for weighted average number of shares, share price and EPS data, which should be rounded to 2 decimal places. All % figures should be rounded to 1 decimal place.

Expected points in a correct answer:
Identifies year-over-year % growth in revenue for GPS as 1.3% 
Identifies a 260 bps year-over-year improvement in gross margin % for GPS
Identifies a 110 bps reduction in year-over-year operating expenses margin % for GPS
Identifies year-over-year % growth in EBIT for GPS of 98.6% is the highest growth in EBIT amongst all the peers
Calculates year-over-year growth % in net income for GPS as 68.1%
Arrives at the FY2025 FCF for GPS as $1,039M by subtracting the FY2025 capex for GPS from the FY2025 cash flow from operating activities for GPS
Arrives at the FY2025 FCF for URBN as $320M by subtracting the FY2025 capex for URBN from the FY2025 cash flow from operating activities for URBN
Arrives at the FY2025 FCF for ANF as $527M by subtracting the FY2025 capex for ANF from the FY2025 cash flow from operating activities for ANF
Arrives at the FY2025 FCF for AEO as $254M by subtracting the FY2025 capex for AEO from the FY2025 cash flow from operating activities for AEO
Recognizes Gap's FY2025 FCF of $1039M is significantly higher than the peer average FY2025 FCF of $367M
Identifies high FY2025 cash flow from operating activities for GPS of $1486M as the primary driver for Gap's FCF
Calculates FY2025 FCF productivity ratio for GPS as 1.2x by dividing Gap's FY2025 FCF by Gap's FY2025 net income

Calculates FY2025 FCF productivity ratio for URBN as 0.8x by dividing Urban Outfitters' FY2025 FCF by Urban Outfitters' FY2025 net income
Calculates FY2025 FCF productivity ratio for ANF as 0.9x by dividing Abercrombie & Fitch Co's FY2025 FCF by Abercrombie & Fitch Co's FY2025 net income
Identifies Gap's FCF productivity ratio of 1.2x is higher than the peer average of 0.8x
Calculates current equity value for GPS as $8,452M by multiplying Gap's share price as of August 29, 2025 with Gap's FY2025 diluted weighted-average number of shares 
Calculates current equity value for URBN as $6,327M by multiplying Urban Outfitters' share price as of August 29, 2025 with Urban Outfitters' FY2025 diluted weighted-average number of shares 
Calculates current equity value for ANF as $4,954M by multiplying Abercrombie & Fitch Co's share price as of August 29, 2025 with Abercrombie & Fitch Co's FY2025 diluted weighted-average number of shares 
Calculates current equity value for AEO as $2,542M by multiplying American Eagle's share price as of August 29, 2025 with American Eagle's FY2025 diluted weighted-average number of shares 
Arrives at the current enterprise value for GPS of $11,413M using the equity value to EV bridge concept
Arrives at the current enterprise value for URBN of $7,119M using the equity value to EV bridge concept
Arrives at the current enterprise value for ANF of $5,057M using the equity value to EV bridge concept
Arrives at the current enterprise value for AEO of $3,666M using the equity value to EV bridge concept
Identifies Gap's current enterprise value of $11,413M is the highest enterprise value amongst all its peers
Calculates the FY2025 EV/Revenue multiple for GPS as 0.8x
Calculates the FY2025 EV/Revenue multiple for URBN as 1.3x
Calculates the FY2025 EV/Revenue multiple for ANF as 1.0x
Calculates the FY2025 EV/Revenue multiple for AEO as 0.7x
Identifies Gap's FY2025 EV/Revenue of 0.8x is lower than the peer average FY2025 EV/Revenue of 1.0x
Recognizes that the lower EV/Revenue multiple for Gap is primarily due to a higher FY2025 Revenue of $15,086M as compared to its peers

Recognizes that Gap's EV/Revenue multiple is lower than the average of its peers primarily due to a higher FY2025 Revenue of $15,086M
Calculates the FY2025 EV/EBIT multiple for GPS as 10.3x
Calculates the FY2025 EV/EBIT multiple for URBN as 15.0x
Calculates the FY2025 EV/EBIT multiple for ANF as 6.8x
Calculates the FY2025 EV/EBIT multiple for AEO as 8.6x
Calculates the FY2025 P/E multiple for GPS as 10.0x
Calculates the FY2025 P/E multiple for URBN as 15.7x
Calculates the FY2025 P/E multiple for ANF as 8.7x
Calculates the FY2025 P/E multiple for AEO as 7.7x
Identifies that Gap's FY2025 P/E multiple of 10.0x is slightly lower than the peer average FY2025 P/E multiple of 10.7x 
Identifies URBN's FY2025 P/E multiple of 15.7x as the outlier leading to the peer average for FY2025 P/E multiple being higher than Gap's FY2025 P/E multiple
Calculates the peer average for FY2025 FCF as $367M
Calculates the peer average for FY2025 FCF productivity ratio as 0.8x
Accurately calculates the peer average for FY2025 current enterprise value as $5,281M

Calculates the peer average for FY2025 P/E multiple as 10.7x 

Calculates FY2025 FCF productivity ratio for AEO as 0.8x by dividing American Eagle's FY2025 FCF by American Eagle's FY2025 net income