Moody’s Ratings changed Gap, Inc.’s debt-ratings outlook to positive from stable and affirmed its overall debt ratings due to its improving performance across banners outside of Athleta.
The ratings affirmed include the company’s Ba2 corporate family rating (CFR) and its Ba2-PD probability of default rating (PDR). Additionally, ratings affirmed included the Ba3 ratings of the company’s senior unsecured notes. The company’s speculative grade liquidity rating (SGL) remains unchanged at SGL-1.
Moody’s said in its analysis, “The change in outlook to positive reflects the continued improvement in the company’s operating performance and profitability due to successful new branding initiatives and cost efficiencies coupled with lower promotional cadence and better inventory management,” Mickey Chadha, Moody’s Ratings Vice President, stated. “Although the business environment for the sector will remain challenging in 2026 due to the inherently discretionary nature of the product and the difficult consumer spending environment, we expect the company to maintain its current operating performance trajectory”, Chadha further stated.
“The Gap, Inc.’s Ba2 corporate family rating reflects the company’s very good liquidity, low funded debt and solid credit metrics. The company’s debt/EBITDA has improved to 2.1x for the LTM period ending November 1, 2025, from 2.8x at the end of fiscal 2023 and down from 4.9x at the end of fiscal 2022. We expect debt/EBITDA to remain at around 2.0x and EBIT/interest to continue to improve towards 5.0x over the next 12-18 months. The company’s topline growth has shown improvement in all of its brands except for its smallest brand, Athleta. Profitability has also increased significantly as margins have improved. Lower inventory levels have resulted in more profitable sales and less promotional activity and input costs have also been lower. The company has also reduced operating expenses through strategic cost cuts and store rationalization. The rating is supported by the company’s good market position in the specialty apparel market with its ownership of a portfolio of specialty apparel brands (Old Navy, Gap, Banana Republic, and Athleta). The relatively shorter term of its store leases (approximately five years) has enabled the right-sizing of its mature brands (Gap and Banana Republic). Investments in its online and mobile business have also strengthened its operational profile and improved its customer experience. Continued integration of its online and store experiences also supports its efforts to increase customer conversion.
“The Gap, Inc.’s SGL-1 reflects very good liquidity supported by its $2.5 billion in cash, cash equivalents and short-term investments at the end of third quarter of fiscal 2025, about $538 million in free cash flow generation for the LTM 3Q2025 and no borrowings under its $2.2 billion asset-based revolving credit facility. We expect free cash flow to remain healthy in 2026. The company also owns sizable assets that it can monetize.
“The positive outlook reflects our expectation that credit metrics will continue to improve in the next 12-18 months as disciplined inventory management will continue to support healthy operating margins with continued topline growth. The outlook also reflects the company’s very good liquidity and moderate debt levels.”
Image courtesy Gap, Inc.
