Eddie Lampert, chairman of ESL partners, has taken a beating on his investment in Gap (GPS, Financial).
In February, Lampert disclosed that he had purchased a 5.8% equity stake in Gap worth approximately $750 million. Gap was the fourth largest holding at the hedge fund.
Yesterday, Gap reported earnings that disappointed investors and the stock is down over 17%. This would create paper losses for Lampert of over $125 million.
Gap reported a 23% drop in Q1 net income and blamed most of the earnings shortfall on inflationary pressures.
The company also revised 2011 guidance by $0.30 per share. Analysts have been critical that Gap has not managed commodity price increases in cotton and oil. In addition, the labor costs must have risen in the quarter.
However, Lampert is a turnaround specialist and an expert on retailing. His largest holdings are Sears Holdings (SHLD, Financial), Autozone (AZO, Financial), and Autonation (AN, Financial).
Despite the recent problems with cost pressures, Gap will most likely attract value investors for the following reasons:
In February, Lampert disclosed that he had purchased a 5.8% equity stake in Gap worth approximately $750 million. Gap was the fourth largest holding at the hedge fund.
Yesterday, Gap reported earnings that disappointed investors and the stock is down over 17%. This would create paper losses for Lampert of over $125 million.
Gap reported a 23% drop in Q1 net income and blamed most of the earnings shortfall on inflationary pressures.
The company also revised 2011 guidance by $0.30 per share. Analysts have been critical that Gap has not managed commodity price increases in cotton and oil. In addition, the labor costs must have risen in the quarter.
However, Lampert is a turnaround specialist and an expert on retailing. His largest holdings are Sears Holdings (SHLD, Financial), Autozone (AZO, Financial), and Autonation (AN, Financial).
Despite the recent problems with cost pressures, Gap will most likely attract value investors for the following reasons:
- The company has a 20%+ return on equity over the last few years
- Gap has repurchased over 30% of outstanding shares since 2003 and the company continues to shrink the share count
- Gap has clean balance sheet with no debt yet the company has $1 billion of lease obligations
- even at the low range of earnings expectations, Gap trades at 14X earnings
