Murphy Leads Gap Above Expectations.......Again..

22 Aug 12:35am
Posted by ToddSullivan
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I think people may look back at at the Gap trading around $15 earlier this summer and in time it may turn out to be the steal of the summer..

Before Glenn Murphy was even hired by Gap I said that if the new CEO was in the Edward Lampert at Sears (SHLD) or Julian Day at RadioShack (RSH) mold, shareholders would really benefit.

After he was hired I was positive on the choice based on his track record and continued to think he could produce there.

After Murphy announced his plans for the company, I could not help noticing something familiar about it.

As it has unfolded, the blueprint become more obvious. Shares have responded climbing 14% from their last summer low's after Murphy's hire.

Back in June I said:

Gap shareholders are going to do just fine under Murphy. Let's not forget, with the exception of Wal-Mart (WMT), retailers are being savaged right now. The fact that Murphy's shareholders (because of the company's results) have escaped that must be telling us something, the plan is working.


Tonight Gap released results and surprised many:
G
ap (GPS) reported that second quarter net earnings increased 51 percent through the combination of driving healthy margins and effectively managing costs.

For the quarter ended August 2, 2008, net earnings were $229 million, or $0.32 per share on a diluted basis, compared with $152 million, or $0.19 per share, for the second quarter last year.

The 2007 second quarter diluted earnings per share included $0.02 of expenses related to the company’s cost reduction initiatives. Excluding the $0.02 per share of expenses, second quarter diluted earnings per share last year on a non-GAAP basis were $0.21 per share. Please see the reconciliation of diluted earnings per share on a GAAP basis to diluted earnings per share excluding the expenses associated with the company’s cost reduction initiatives, a non-GAAP financial measure, in the table at the end of this release.

“External conditions aside, we continue to deliver improved earnings with healthy margins and I am pleased with our second quarter results,” said Glenn Murphy, chairman and chief executive officer of Gap Inc. “While we continue to pursue our 2008 financial strategy, we are very focused on bringing more customers into our stores.”


If that was not good enough, they backed their full year guidance and also said they are sitting on $1.7 billion in cash after bringing in another $340 plus million during the quarter and buying back 16.3 million shares. Here is an interesting number, 12.3% of the Gap's current market cap consists of the cash it has sitting in the bank.

Over the past year retailer like Target (TGT), Macy's (M), Kohl's (KSS) and JC Penny (JCP) have all seen their profits and share prices (50% decrease in some cases) shrunk. Murphy's Gap has held it's own and it share price, essentially flat over that time reflects that.

My guess is Gap shareholders are some pretty happy folks right about now



Disclosure ("none" means no position):

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About

ToddSullivan

A Massachusetts based value investor, I look for companies whose current valuation is at a discount to their true value. When I purchase a stock, my typical holding period is several years. I consider buying a stock purchasing a piece of a business. I am confident once I make a decision to buy that eventually the market as a whole will recognize the true value of the business and value it accordingly. It may take 1 month, 6 months or a year, but if I buy it at enough of a discount to its true value my results will be (and have been) superior to the market as a whole. Of all the disparate investing disciplines, value investing has stood the test of time. The great investors of have all been value investors. Warren Buffett, Ben Graham, Bill Ruane (Sequoia Fund), Bill Miller and Wally Weitz, all have consistently outperformed the market for decades by using various forms of value investing. Currently I am a contributing writer to Seeking Alpha, Vinvesting.com, The Stock Masters and Value Investing News. Posts have been reprinted in The Wall St. Journal, Yahoo Finance, Google Alerts, Google Finance, TheStreet.com. 24/7 Wall St. and Topix.net.

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