Gap's been struggling for quite some time, but there are still plenty of Gap defenders around -- the stock's recommended by both Motley Fool Inside Value and Motley Fool Stock Advisor. I'm not one of those defenders. Gap bull cases generally center on its balance sheet and brand, but I'd argue that even those are fading positives at this point. Gap has admitted that it has done too much cost-cutting over recent years, sacrificing frills and thrills in its product line. Meanwhile, if the top line continues to suffer, its cash reserves are sure to follow suit.
Its brand is my principal concern -- I'd argue that it has simply been struggling to regain relevance for too long now. Is Gap's brand is getting a bit tattered, like last season's denim?
Is the brand in demand?
My Foolish colleague Seth Jayson was right on the money with his critique of Gap's last quarter. Indeed, in one of my favorite S.J. articles, he pretty much nailed the idea that Gap's got an identity crisis, which has been painfully clear to investors for quite some time.
Having taken a peek into Gap's conference call from last quarter, I'm hardly convinced that Gap's much closer to exciting customers again, despite management's acknowledgement that it's an urgent matter at this point. There seemed to be a great emphasis on marketing, remodeling, and window-dressing, and while I'll acknowledge that many Gap stores probably need a coat of paint and then some (I've seen a few that looked downright slovenly), I was concerned that the call's actual fashion talk seemed a little bland.
"Key big ideas" at top-of-the-line Banana Republic? "Classic white shirts and chinos." At price-conscious Old Navy? "Stripes and naturals." And for Gap, the flagship, the name that started it all? It's "t-shirts, hoodies, great clean bottoms, and denim." In fact, Gap said it will "reestablish authority" in those items. Aside from snickering a bit at "great clean bottoms," I couldn't get excited about t-shirts, hoodies, bottoms, and denim. Where's the excitement, people? Even more important, where's the differentiator?
My read was that Gap's still running in circles. What among those choices isn't provided elsewhere? Everyone from Abercrombie & Fitch
Hold on to your hoodie
Investors were chilled when Urban Outfitters
Rick, need I say more? Shareholders are surely unhappy with the performance exhibited by CEO Paul Pressler, a former Disney
Given the myriad problems that face Gap, the balance sheet argument loses luster. Gap may have posted $951 million in trailing-twelve-month free cash flow last quarter, but that was actually 19.3% lower than last year. Sales stunk, and margins continue to fall. Its dividend and share buybacks sweeten the deal for investors -- but is that enough of a consolation prize if this company can't drum up growth? I don't think so.
Sorry, Rick. Gap's not back yet, and given just how long it's been struggling, I can't help but wonder if it will ever regain even the shadow of its former fashion glory. Investors, beware.