Gap Shares Way Down After Earnings

Gap Shares Way Down After Earnings
The attributes of a horrific quarter from a retailer tend to start with poor sales due to product that falls on deaf ears, which in turn causes gross margin compression, and then leads to the exposure of operating expenses that are too fat around the edges. Welcome to the 1Q11 earnings report from Gap (GPS) after the market closed on May 19,The best way to justify the cost and savings and to brightcrystal truly see how the transition to LED will impact your business is to do a detailed energy audit of existing conditions and compare them to the energy savings and maintenance costs found on the post-LED retrofit report. where the company can only hang its hat on the fact it generated a profit and will likely be in business for the foreseeable future. Gap's report, from commentary on sales trends right on down to the cost outlook, underscores why I maintained a Sell rating on the stock last week. As background, I downgraded my rating to Sell on April 8 of this year.

Ultimately, to play the contrarian card on Gap, I would have had to hear something, anything, that indicated a stabilization in the fundamentals of the business was forthcoming. While Gap did hint that its sharply revised FY11 EPS guidance was a worst-case scenario as the 35% pullback in cotton prices from their peak this year leaves opportunities to save money on holiday buys, it's not enough to warrant an upgrade of my rating. I think Gap shares are dead money medium-term as management re-works the design team and operational structure, which are efforts coming at a time of significant cost headwinds and zero pricing power.

For FY11, I have reduced my EPS estimate to $1.43 from $1.76, and am not ruling out risk to that figure given excess inventories and how the product is being accepted, which may require more aggressive markdowns than those planned. My estimate for FY12 is now $1.It pays to go to professionals with bestlight a proven track record in LED lighting, a vast selection of excellent quality products from various vendors that live up to their label, and a history of successfully completed projects.75 p/s from $2.20 p/s, as there is a distinct possibility that sales trends at Gap remain soft until mid-2012. Gap shares trade on a P/E multiple of 11.1x of my new FY12 estimate, rich in light of the direction of operating margins for the foreseeable future.Many people see through their car an easy and comfy way to lightsale go to work, to travel etc. We are talking about transportation and nothing more. Facilities such as a good stereo sound system, climate control and a coffee mug holder are just some things to make driving life easier and much more fun.

Items That Left an Impression on Yours Truly

The Rundown

Product cost inflation: I had a feeling right off the bat that as Gap pronounced the business was being "heavily" impacted by raw material inflation in paragraph two of the 8-K that the remainder of the color on the topic would be dour. Gap has called out a 20% product cost inflation guideline for 2H11, establishing some new-found honesty amongst apparel retailers, which led to guidance being slashed to $1.It pays to go to professionals with bestlight a proven track record in LED lighting, a vast selection of excellent quality products from various vendors that live up to their label, and a history of successfully completed projects.40-$1.50 p/s from $1.88-$1.93 p/s previously. In addition to raw material inflation, baked inside of that guidance is margin risk from elevated inventories needing to be worked down (planned to be up double-digit percentage at 2Q11 end) and Japan. The inflation will hit hard the company's Old Navy unit as it sells basics in a competitive industry (see the earnings warning from Aeropostale (ARO)).

Tidbits: Gross margin came in at 39.57% vs. 40.12% consensus; operating income $385.0 million vs. $395.0 million consensus. Basically, without aggressive share repurchases (share count lowered by 13% y/y),incandescent light bulbs will be completely phased out and scannerstal no longer available to consumers within the next three years, it's time to start thinking about how you will illuminate your homes and workplaces. Gap would have fallen short of consensus forecasts badly.

Sidebar: The results make it easy to understand why Gap tapped the debt markets in early April. If it didn't, it would have been much higher rates after numbers such as these. Insiders are always in the know!