Great Atlantic & Pacific Tea (GAP) recently reported earnings, a company we rate a sell. Our recommendation is based on the company's weakness in fresh segment sales, dwindling cash position and reported net loss.In addition, GAP faces risks from mounting debt, negative returns and a weak liquidity position. However, impressive revenue growth, increasing shareholders' equity and higher average weekly sales per supermarket are the upsides to our sell rating.
The company's fresh segment performed poorly. GAP's third-quarter sales at its fresh segment contributed 50.5% of the total sales. Sales in this segment declined 2.9% to $1.07 billion from $1.10 billion, due to store closures.
GAP swung to a net loss of $13.63 million, or $1.35 per share, from a net profit of $57.31 million, or $1.73 per share, in the third quarter of 2007. The year-ago results benefitted from a gain of $106.06 million from the sale of
Metro Inc. shares. Loss from continuing operations totaled $2.99 million compared to net profit of $73.08 million in the prior year's quarter.
GAP reported a dwindling cash position and higher leverage level. The company's cash position during the third quarter dwindled, as reflected by a 72.9% decline in cash and cash equivalents and a quick ratio of 0.47. Moreover, the debt-to-equity ratio deteriorated to 3.29 from 1.49 a year ago, as total debt surged 176.1% to $1.49 billion.
Other metrics are also negative. Dragged down by reported net loss, return on equity swung to negative 10.48% from a positive 33.46% in third-quarter 2007. Similarly, return on assets stood at a negative 2.43%, compared to a negative 5.16% a year earlier.