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The Gap, Inc. Message Board

  • asild_ngr asild_ngr Jul 2, 2000 12:12 PM Flag

    Stock Strategies: RuleBreaker:

    Motley Fool - Stock Strategies: RuleBreaker: Fool Research on Parade. here is URL:
    http://www.ialfred.com/servlet/ServletCGI?item=INVFN&zone=STOCKS&symbols=GPS&day
    count=3

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    • Another Bummer for The Gap?
      by Dan Dorfman

      Jun 30, 2000 01:00 PM

      NEW YORK (JAGfn.com)
      -- Next Wednesday, The Gap (GPS), a leading casual
      apparel specialty chain with 3,145 stores, will report
      its June comp-store sales.
      One money manager who
      doggedly tracks the retail sector tells me the month's
      showing should be a bummer.

      This view, he tells
      me, is based on a check of inventories, prices and
      traffic at a smattering of the company's stores in its
      three major chains--The Gap, Banana Republic and Old
      Navy.

      The chief findings: Generally high inventories,
      bigger-than-usual seasonal markdowns and weak traffic, especially
      in the domestic 513-store Old Navy chain, which is
      The Gap's major growth engine and represents 36% of
      overall sales.

      In one Old Navy store, a jacket had
      been marked down 96% after a series of discounts
      failed to produce the sale of the garment.

      In
      May, Old Navy comp-store sales fell 7% - 9%. The money
      manager believes this division's June sales could easily
      be as bad as May's, if not worse.

      "I feel
      pretty sure the company's June results will be worse
      than expected," the money manager tells me.

      A
      poor June showing, if indeed that's what The Gap
      reports, would follow a dismal May performance
      characterized by a 2% decline in comp-store sales and weak
      margins.

      Already there's speculation, as noted by Robertson
      Stephens analyst Janet Kloppenburg, that June and July may
      not be any better than May.

      This concern, she
      points out, is based on the currently weak performance
      of the Old Navy division, as well as continued
      weakness in The Gap division's men's
      business.

      Accordingly, Kloppenburg is raising the prospects of a
      shortform in her earnings estimate for the current second
      quarter. She sees the possibility of $0.22 a share, versus
      her previous forecast of $0.25 and reported earnings
      of $0.22 a share a year earlier.

      The Street's
      consensus is $0.26.

      Kloppenburg's revised thinking
      also suggests to her the prospects of
      less-than-expected earnings for all of 2000. Her prior $1.50 a share
      estimate has been cut to $1.47. The company earned $1.26
      in 1999.

      Kloppenburg says that if The Gap
      continues to disappoint, the company could earn as little
      as $1.40 a share in 2000 and $1.69 in 2001. Still,
      she feels the company could well achieve her 2001
      estimate of $1.80.

      But what about the
      stock?

      It has been clobbered this year, plunging from the
      52-week high of 54 to a recent 52-week low of
      28.

      It is currently trading at 30 15/16, up
      15/16.

      Kloppenburg believes The Gap, given its sharp decline,
      represents a compelling entry at its current level. However,
      she also cautions that if you apply the company's
      historically low multiple of 15 to the share price, the stock
      could trade as low as 25, a decline of more than
      19%.

      In other words, The Gap, which declined to discuss
      June sales trends, may look dirt cheap--but The Gap
      could be a stock trap.

      Apparently, a fair number
      of investors share this view, as evidenced by a
      whopping short interest (a bet the stock price will fall)
      of nearly 5.5 million shares--this despite the big
      drop in the stock price.

      I don't know what it
      all means, but I recently visited a Gap store in
      midtown Manhattan. I was the only customer in the place.
      Only one other person came in while I was there and he
      was looking for the bathroom.

 
GPS
41.51-0.18(-0.43%)Oct 1 4:02 PMEDT

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