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Mind The Gap


Daisy better stay out of the malls!


Just a short blurb on GPS, which I added to my short book this morning. I use a mix of fundamental, macro, and technical analysis to determine what stocks I want to own or short. Here's the run-down on GPS on all three fronts.

On the macro side, you already know I think the consumer is in trouble and that discretionary spending in the 2H:04 is in trouble (and yet another fleece pullover counts as discretionary).

On the fundies side, they reported their Q last night and met estimates on EPS and same store sales. They raised operating margins for 2005 however (from 11-13.5% to 13.5% - 16%) based on better inventory control and lower discount selling. EPS on the Street have come up 4-6 cents for 2004. Operating margins in the retail business are a function of one thing and one thing only: sales. If sales are lower than the expected rate (10-12% y/y), no amount of merchandise mix, inventory management, or other operating efficiency is going to matter in getting to those 2005 operating margin targets.

On the technical front, from the 12/23/03 high, to the 18.15 low is a clear impulse move which has yielded a corrective rebound to today's level which, at 21.41, is the 0.618 retrace (our old fibonacci friend phi) of the entire move down. The short base has dwindled a ton over the last 2 years and largely speaking, most of the good news w/r/t the "turnaround" at the Gap is known. All the good news looks to be in the stock and it's primed to react negatively to any less-than-stellar news.

As always, this is not a recommendation, just wanted to let the readership see how we make decisions (please know that the analysis is far more in depth than this simple blurb). We have a stop on our $21.41 short entry point of $22.33. Let's watch how the nation's largest specialty retailer fares from here.

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Position in GPS

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