The Gap Inc.

Company Description

The Gap, Inc. is a global specialty retailer which operates stores selling casual apparel, personal care and other accessories for men, women and children under the Gap, Banana Republic and Old Navy brands. The company designs virtually all of its products, which in turn are manufactured by independent sources, and sells them under its brand names.

Another "Surprise"

When a company has beaten the consensus estimate in all but one quarter for the past 5 years it is hard to call it a surprise. On May 21 Gap announced its first quarter results that beat expectations. Earnings per share came in at 31 cents, a penny more than expected.

Overall sales dipped roughly 7% to $3.13 billion, but online sales great 13% to $267 million.

Estimates Risings

Following the recent earnings news analysts began raising forecasts. The consensus for fiscal 2010 is now $1.24, up 17 cents over the past 3 months. Estimates for 2011 are now averaging $1.33, up 16 cents over that time span.

Given these levels, earnings are expected to dip 7% this year, but should bounce back 7% next year.

Topping the Industry

Gap is the number one apparel retailer and when looking at the financials it is no surprise. The company carries no debt and tops its peers in several key categories. Gap's profit margin is 6.5%, triple the industry average. The company generates a return on equity of 21.4%, well above the norm for the industry of 7.9%.

The Chart

In a very cyclical industry Gap has managed to provide consistent earnings results. The company has beat forecasts in every quarter except one in which they met expectations.