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.