Please Mind the Gap

Oh, joy to be me. Between the failures of the business media and the kooky names of companies, I can almost always find one of those groaning word plays from which I derive such a frightening degree of pleasure. This week? There was a gap in some of the Gap(GPS) coverage.

If you are not going to spend the rest of the day braying that that was the worst thing you've heard since I mentioned that coverage of Limited was limited, then listen up and I'll try to teach you something about cost cutting.

Good companies can cut costs, sometimes to a degree that an outside observer cannot imagine. But unless revenue is simultaneously rising, cost cutting for even the best operators runs its course. Many in the business media got this right this week when Gap, the currently troubled, formerly great retailer, reported better-than-expected earnings.

They made clear that the better earnings were largely a function of Gap's unrelenting campaign of job cuts and other reductions. In other words, in the cold calculus of financial analysis: better than nothing, but ultimately, limited. (Ah!)

It's an important thing to make clear because a headline that merely shouts about good earnings can mislead investors. As can a story that does not mention the overweighted impact of cost cuts prominently. Amy Merrick of The Wall Street Journal gets this week's coveted Business Press Maven "Nod of Approval" by performing this simple but essential task. Here is her headline, God bless it: "Gap's Net Rises 19%, Helped by Cost Cuts."