Liquid Lounge
Learn Something New Every Day

Format for Printing

Format for printing

Request Reprints


By xFatOtt
October 18, 2005

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

This shorting experience is somewhat new to me, so there have been several learning experiences during my short position in GAP. Today's lesson is, when the company's optimistic projection is that they don't become profitable until 2007, it's hard to be disappointed by an earnings announcement. Sure, the company's same store sales declined in the Northeast, where the new A&P will be focused. And sure the firm reported EBITDA of -$65 million in the current quarter, compared to $103 million in the prior year's quarter.

That's not important because the company had $220 million in non-operating items, so the true comparison is, da da da, the current year's adjusted EBITDA of $81 million, relative to last year's $59 million. That's a 37% year over year increase, as they point out in the PowerPoint presentation that accompanies their conference call (that I haven't had the chance to listen to yet).

Maybe the market is responding to this line of the press release:

Net income for the quarter was $592 million or $14.40 per diluted share this year versus a loss of $1.67 per diluted share last year.

I mean, if you annualize that, GAP is trading at a P/E ratio of about 0.5!

Or maybe the market is reacting to the first bullet point of the Strategic Plans for the Future slide, which reads, "Many accomplishments in U.S. over past several years."

Overall, I think this is a tribute to low expectations - you can't fall off the ground!

Oh yeah, one of the more amusing things about this is seeing the marking to market of my short account (which will be painful today). It's labeled "MARK TO MARKET SHORT POS", which is pretty much how I feel about it.

Become a Complete Fool
Join the best community on the web! Becoming a full member of the Fool Community is easy, takes just a minute, and is very inexpensive.