September 28, 2000

Since the summer of 1999, the premier retailer in the world -- Gap Inc. (NYSE: GPS) -- has beaten a steady retreat. The company's stock has fallen from $52 per share to $20, a more than 50% decline. That represents a $28 billion reduction in value for Gap shareholders. Today, Gap's balance sheet is weaker than it's been in years, and the company is even having trouble distinguishing its core brands (Gap, Old Navy, and Banana Republic) from the pack.

I'll offer a radical interpretation of Gap's decline. Back in December, 1997 -- with the stock at half its present-day price -- Gap signed on for $500 million in long-term debt at an interest rate of 6.9%. Far from starting to pay down the principal, Gap has since extended its borrowings to above $1 billion.

When companies make a practice of borrowing from their future to satisfy a hunger for expansion today, it's cause for concern.

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