We expect the specialty clothing retailer, The Gap Inc. (GPS Quick QuoteGPS - Free Report) to beat expectations when it reports second-quarter fiscal 2016 results on Aug 18, after the market closes. In the preceding quarter, the company had posted earnings in line with the Zacks Consensus Estimate.

In fact, the company has reported in-line earnings for five straight quarters now. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Gap may beat on earnings because it has the right combination of the two key components.

Zacks ESP: Gap currently has an Earnings ESP of +3.51%. This is because the Most Accurate estimate stands at 59 cents per share, while the Zacks Consensus Estimate is pegged lower at 57 cents.

Zacks Rank: Gap carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 and 3 have a higher chance of beating earnings estimates. The Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of Gap’s Zacks Rank #3 and Earnings ESP of +3.51% makes us confident of an earnings beat.

What is Driving Better-than-Expected Earnings?

Gap has been struggling with waning top-line results, owing to the ever-changing fashion trends, slow traffic and currency headwinds. In fact, the company’s dismal top-line trend continued to linger as evident from the recently released comparable store sales (comps) and sales data for July and the second quarter. While sales for the quarter fell year over year, the figure was ahead of the Zacks Consensus Estimate.

Another ray of hope in the aforesaid results was the performance of Old Navy, which delivered flat comps results for July as well as the second quarter, following the positive comps delivered in June. That said, we believe the company’s efforts to revive the Old Navy brand have started to pay off.

This also keeps track with the recently chalked-out strategic plan that advocates positioning the company to match the accelerated pace of change in the apparel industry. It intends to escalate its transformation plan by bringing meaningful changes to its product portfolio and operating capabilities worldwide. The company remains committed to better position itself for long-term growth by setting its priorities right and channelizing its resources accordingly.

Gap plans to focus on growing its brands in regions which offer greater structural advantage and potential to expand market share. Apart from focusing on the market positioning of each of its brands, the company remains keen on streamlining its operating model by creating a more proficient global brand structure. By doing this, it anticipates its brands to better leverage its scale advantages and more quickly ascertain and respond to the changing needs of customers and the retail landscape.

While the troubles at Gap are quiet obvious, we believe the company’s calculated plan provides the needed boost to turn around its operating performance. Further, the top-line beat in the second quarter keeps us hopeful of a bottom-line beat as well. That said, let’s wait and see what is in store for Gap in the upcoming release.

Other Stocks to Consider

Gap is not the only firm looking up this earnings season. The following companies are also likely to beat on earnings in the to-be-reported quarter:

Best Buy Co. Inc. (BBY Quick QuoteBBY - Free Report) , scheduled to report earnings on Aug 23, has an Earnings ESP of +7.14% and a Zacks Rank #2 (Buy).

GameStop Corp. (GME Quick QuoteGME - Free Report) , scheduled to report earnings on Aug 25, has an Earnings ESP of +7.14% and a Zacks Rank #2.

DSW Inc. , scheduled to report earnings on Aug 30, has an Earnings ESP of +6.90% and a Zacks Rank #2.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>