Updated from 4:48 p.m. EST Roughed-up apparel chain Gap ( GPS) is shaking things up, but investors don't seem impressed. The struggling San Francisco-based retailer shuffled the management of its flagship Gap Stores division Tuesday and said it would sell $1 billion worth of convertible bonds next week. Gap also posted a fourth-quarter loss that was in line with analysts' estimates, but the company's other moves will draw far more attention from turnaround-obsessed investors, who are now grappling with liquidity and management-based questions at the company. Unfortunately, few of those questions were even addressed, much less answered, in a postclose conference call. Gap shares were selling off in after-hours trading, dropping 76 cents to $12.79.
deteriorating for nearly two years. Once a highflying growth company, Gap hasn't reported an increase in same-store sales in 21 months. Critics says the company has abandoned its roots as a seller of basics -- khakis, jeans, T-shirts -- in favor of jazzier attire, an effort that failed to win over consumers. At the same time, the company simply operates too many stores, some say. Indeed, last year, as sales slowed markedly, the company opened 600 new stores, bringing its total to about 4,150. Gap has scaled back expansion plans for 2002, but on Tuesday said it still expects to open between 170 and 190 new stores. Meanwhile, the company's balance sheet is starting to look shaky. The two major credit rating agencies recently slashed Gap's rating to junk status. The move, which affects some $2.6 billion in debt, makes it more expensive for Gap to borrow money. The downgrade followed Gap's announcement that it had lined up a two-year, $1.3 billion secured bank facility. That type of financing is normally reserved for financially weaker companies whose bonds don't earn an investment-grade rating. The stock is off over 61% from its 52-week high -- yet despite all the problems, it still trades at a premium to peers with brighter prospects, notes Emme Kozloff, an analyst at Sanford Bernstein, in a recent research note. At about 32 times forward earnings, Gap trades at a higher multiple than Abercrombie & Fitch ( ANF), American Eagle Outfitters ( AEOS) and Limited Too ( TOO), among others. The stock closed Tuesday up 72 cents at $13.63. Most on Wall Street regard 2002 as a make-or-break year for Gap. If sales keep plunging the way they have in recent months, then the company's overhead -- operating all those stores, paying all those workers, servicing all that debt -- could become such a burden that Gap will need to seriously rethink what it's doing, and either sell businesses, close stores or both.