Gap (GPS) is getting clobbered this morning after the San Francisco-based basic apparel pioneers posted another disappointing quarter.

For the full year the company took estimates down to $2.73 from as high as $3 give or take a nickel. Since we're already in the last quarter of the year that's a sort of annoying way of warning big for the all important holiday quarter.

It's a tough exit for outgoing CEO Glenn Murphy who announced in October that he will be leaving early next year; an announcement made immediately after a weak sales report. Murphy is now in the awkward position of watching his replacements disassemble his management team even as he has months left on his contract.

Gap's real problem is below the headlines. CFO Sabrina Simmons told analysts Gap intends to reduce capital expenditures to $700 million from a prior $750 million. The reason she gave came down to expected return on investment. Simmons said with margins coming down it didn't make sense to invest as much on stores.

That would be precisely the same thinking that slowly turned Sears from the biggest retailer in the world into a zombie REIT posing as a merchant.

At the same time, Simmons and the rest of the team hyped Gap's massive share buyback, boasting that the company had spent some $433 million buying back 11.4 million shares in Q3. At about $38 a share those repurchases were a great investment...right up until the company turned in that dog vomit quarter. Now the stock is trading right back down at their cost basis and the stores still look horrible.

What Gap is doing is everything wrong with buybacks as an idea. The company is obviously sick on a fundamental level. The stores need TLC. Instead of focusing on being merchants management is acting like a one-stock hedge fund in the business of owning shares of GPS. In making that capital allocation decision Gap is actively lowering the potential return on its own investment for the long run in hopes of propping up shares today. That's no way to invest or run a retailer.

If you're buying the stock for anything other than a trade your best and only rational thesis is that new management will come to its senses before H&M, Zara and the other fast fashion operators currently eating Gap's lunch finish the whole meal.