The Worst is Not Over at the Gap

What a streak.

On Thursday, Gap (GPS Quote) reported that same-store sales in October plunged 17%, marking the 19th-straight month of declining sales at the company, which was once a must-own for investors.

The San Francisco-based company has too many stores and weak fashion -- check out its current stock of striped ski sweaters -- and there is virtually no reason to own the stock.

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After each earnings shortfall and sales disappointment during its descent over the last couple of years, the company has talked up its turnaround plans. Each time it has failed.

The stock, meanwhile, has risen about 24% since its 52-week low reached in late September, but at just shy of $14, it is still well off its year's high of $34.98.

Gap still boasts some bulls on Wall Street who after each disappointment give some variation of "the worst is over," or say that it's "well-poised for the long term." Now, after 19-straight sales shortfalls, analysts are finally downgrading the stock, and a turnaround is not in sight. In fact, things could get even worse, given the state of the economy. In the early days of Gap's demise, remember, many of its problems were internal, while the economy around it hummed.

With the long term cloudy, near-term concerns also have arisen lately. Todd Slater, an analyst at Lazard Freres, recently downgraded the stock to a sell, partly because of the company's deteriorating balance sheet. Gap's debt load is increasing, and the company faces imminent credit rating downgrades from Moody's and Standard & Poor's, Slater notes.

With no visibility, bad sweaters and a recession, there's just no reason to shop at Gap.
Who won today's Face Off? Glenn Curtis Tim Arango