True, Gap did increase net income by 21% to $265 million, or $0.35 per share. And of course, the company said it will up its dividend and buy back shares.
But in a turn of events that parallels the situation I noticed at RadioShack
Gap's cash hoard has always been a big part of its investment thesis; it ended the fourth quarter with $1.9 billion in cash. Free cash flow has also recovered, at $1.4 billion compared to $678 million last year. (Gap expects a total of $900 million for the full fiscal year.) That cash does allow Gap to pacify shareholders with dividends and buybacks; let's hope the shares are repurchased at prudent prices.
I know turnarounds require patience, but I'm sure that anybody who's followed Gap may feel like this is the same old story. Cutting costs is one thing, but the real test is whether Gap can woo customers back in the door and get them excited enough to spend.
The landscape is riddled with retailers struggling with turnarounds, and shoppers will be more fickle than ever in these tough economic times. Consider the troubles at Coldwater Creek
Given Gap's 5% pop today, I was expecting much more from the quarter. I still don't think Gap looks like a stellar stock idea, given the challenges it faces and the possibly irretrievable damage its brand has suffered over the years. Hope may spring eternal for some Gap fans, but I'm still not convinced that Gap can turn things around anytime soon.
Refresh your memory on recent activities at Gap: