Retail continues its' "Twilight Zone"-like behavior, and there's never a dull moment. After yesterday's market close came word that Gap (GPS) has shuttered its plan to spinoff Old Navy, citing the associated costs, as well as "softer business performance". Up 4% in regular trading, GPS was initially up another 10% in after-hours trading. (Pre-market trading this morning had shares +6% as I write this.)
Spinoffs have historically been believed to be synergistic and often greeted by the markets as a positive, at least initially. But this is retail, where down is up and up is down, and the dynamic of the sector continues to change. I can't think of many cases when the cancellation of a spinoff has been greeted so favorably, but that's retail for you.
Markets apparently view GPS to be "stronger" with Old Navy, although that's a relative term. For its part, the company also announced that full year earnings will be above it's $1.70-$1.75 per share guidance (due, in part to Old Navy), and same store sales will be at the high end of the company's "down mid-single digits to down low-single digits" guidance. GPS, a member of my 2019 Tax-Loss Selling Recovery Portfolio is off to a good start (+15% through yesterday's close since being named to that portfolio) and currently trades at about 11x next year's consensus estimates, and yields 5.2%.
In thinking about the overall plight of retail, in an increasingly online shopping dominated world, the landscape of remaining brick and mortar stores will likely be much different in five years, 10 years, and even next year. Contrast that to the original generation of large scale retailers such as J.C. Penney (JCP) which is still hanging on, just barely. While it's been in decline for years, it's still had a 118 year run; ditto Sears (SHLDQ) , founded in 1899, which filed Chapter 11 in late 2018.
A good portion of publicly traded retail is now "cigar-butt" land - i.e., names that have seen better days but may have a puff or two left. For me that currently includes Ann Taylor parent Ascena Retail Group (ASNA) , which recently underwent a reverse split, and of which the market is nothing but skeptical in terms of company survival. It also includes Fossil Group (FOSL) , a successful play two years ago, of which I recently took a second bite of the apple (or puff of the cigar).
