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3 O'Clock High: Minding the Gap


"Starbucks could be the next Gap!"

Minyan Kneel! Writes:

Is it me or is the Street just way too excited over GPS earnings later today? My own rigorous channel check, that I never see anyone in their stores when I venture out to the mall, tells me all I need to know.

Actually, yesterday I did go to a Gap and it was like I was transported back to the year 2000. The styles were identical. No new merchandise, no new styles, no customers. The stores were empty (it was one of the new type Gaps, where the baby, kids and normal Gap were all connected).

I dunno, maybe I'm overthinking it but it wouldn't shock me if the report was not that good.

Your thoughts?

-Standing astride the planet as a Colossus since 1979

Are people really "excited", let alone too much so, about Gap (GPS) reporting? I've been pretty much entirely focused on the Olympic hockey tournament. Not that I've been ignoring my financial interests... let's just say Mrs. The Great One really liked the Czechs today.

I've been thinking a lot about the Gap since Starbucks (SBUX) reported last week. Mostly what I've been thinking is "Holy Cow, Starbucks CEO Howard Shultz didn't really just serve up a growth plan involving movie and music distribution, with a zesty dash of 'China!' to the Street did he?

"Starbucks is trading at 55x earnings over 4x sales and has 3/4 of the analysts at Buy or Strong Buy. They've been so great for so long that no one even dares question the notion that the world isn't exactly screaming for a music store with a selection of 2 titles and coffee. And 'China', huh? That seems like a sure thing..."

"Meanwhile, the company with the last growth-plan to make me spit-take, The Gap, is down to 1x sales and a mid-teens multiple. I don't even like the Gap. I think GPS would be a hat size if not for the buyout groups lurking all over the place.

"But if I had to get long one of these stocks for the next 3 years, Gap or Starbucks, I would take the Gap all day and twice on Sunday. I wouldn't advise anyone to do it, but I just might have to look into a "Short Starbucks/ Long Gap" paired trade."

But, again, that wasn't so much about the Gap's report tonight as it was just me thinkin'.
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