Transcripts

The Gap's Debt Grows

SUZANNE PRATT: A company recently under scrutiny from the investment community is Gap. The retailer has been struggling to get its house in order after a three-year slump in sales. But as Erika Miller reports, most analysts aren't predicting a quick turnaround.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: A visit to Gap's 34th Street store in New York City illustrates the company's main challenge. How can it get customers to shop here, rather than at H&M across the street or more youthful American Eagle Outfitters around the corner? JPMorgan retail analyst Brian Tunick, whose firm does investment banking for Gap, says the company needs to pinpoint its core customer.

BRIAN TUNICK, RETAIL ANALYST, JP MORGAN: I think them trying to sort of appeal to a 25 to let's say, 40-year-old customer -- more with a basic focus -- is an opportunity for them. And refining that focus is something that hasn't been there for years.

MILLER: In an effort to revive its brand, Gap recently hired high end designer Patrick Robinson, who previously designed clothing for Target. But fashion is just one of many problems plaguing Gap. The company, which operates more than 3,000 stores, has been trying to streamline operations. It also needs to find a new chief executive officer. Robert Fisher, who has been serving as interim CEO since the resignation of Paul Pressler in January, has said he does not want the job. Some analysts predict new leadership might consider selling the company, or its old Navy or Banana Republic divisions. Rival Limited Brands recently announced it would sell a majority stake in its express chain and it is exploring options for its Limited stores. In Gap's case, sales have been in a slump since 2004 and so has its stock price. Over the past three years, the shares have fallen more than 25 percent. Since January, they're down about 6 percent. But Wall Street analysts disagree about where the stock is headed. Currently, six analysts advise investors to buy, three say sell, and most are neutral. Citi's Kimberly Greenberger is in the majority camp

KIMBERLY GREENBERGER, RETAIL ANALYST, CITI: I'm not sure that we'll see significant improvement for Gap. Given the size of Gap, they own roughly 7 or 8 percent share of the U.S. apparel market. That's a very, very large share to own. We're likely to see sort of moderate growth from them. But hopefully we'll see it by the second half of the year, when some of the strategic initiatives kick in.

MILLER: Citi has done investment banking and other business with Gap over the past year and it owns more than 1 percent of Gap shares. In addition to its internal issues, Gap must grapple with a slowing economy. Experts say a soft housing market and high gasoline prices will make many consumers think twice about discretionary clothing purchases. Erika Miller, NIGHTLY BUSINESS REPORT, New York.