The sale rumors followed the Jan. 4 release of fourth-quarter financials, which not only took a deep dive, but also caused a nearly 18%-drop in the company's full-year, per-share guidance. Based on its 2006 holiday sales performance, management said it now expects full-year earnings per share of between $0.83 and $0.87 versus the previous guidance of between $1.01 and $1.06.
With 10% and 9% drops in comp store sales at Old Navy and Gap North America units, respectively, expect store closures, predicts Howard Davidowitz. He is chairman of Davidowitz & Associates Inc., a New York City-based national retail consulting and investment banking firm. He tells GSR, "I'd not dismissing a sale, but I think store closures and a CEO-change are more likely.
"Expect a lot of closings of Old Navy and Gap units," he says. "The comp store sales suggest there are a lot of under-performing stores. Clearly a sale is possible. Gap generates a lot of cash flow, which would make it attractive to an equity firm. Even if bought, however, there would be a CEO-change."
On Jan. 4, Pressler said, "we are clearly disappointed with Gap and Old Navy's holiday sales and overall performance for the year. Given that we did not gain the traction we had expected, the management team, with the active involvement of our board of directors, is reviewing Gap and Old Navy's brand strategies. We are committed to making the necessary changes to improve performance."
Following that, without citing a source, a CNBC cable TV reporter said that Gap Inc. had hired Goldman Sachs to explore strategic alternatives, including a potential sale. Gap Inc. did not return a GSR call by deadline, and, according to published reports, neither Gap nor Goldman Sachs has commented on the report.
However, on its heels, shares of GPS stock shot up 7.3% to $21.04 on the NYSE on Monday, Jan. 8, approaching the Oct. 31 high of $21.39 a share, and more than 29 million shares traded hands. By mid-morning Jan. 9, the stock fell to $20 a share, still well in excess of the 52-week low of $15.91, which occurred on July 18.
As of Dec. 30, Gap Inc. operated 3,184 total units, up from 3,126 the year before. Its size, Davidowitz and others suggest, could prohibit a sale. "It's huge," Davidowitz says. Wall Street analysts have speculated that the price would have to be in the $20-billion range.
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