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Is Gap (GPS) Set to Miss Q1 Earnings Estimates?

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Shares of Gap have climbed 10% over the last four weeks in a sign that investors might be anticipating strong quarterly financial results from the retailer. Let’s take a look to see what they should really expect from Gap in the first quarter.

Gap follows a slew of other retail industry giants which have all reported their quarterly earnings results over the last few weeks, including Macy’s (M - Free Report) , Nordstrom (JWN - Free Report) , J.C. Penny , and  Kohl's (KSS - Free Report) . Not all of these companies have performed well following the release of their Q1 earnings, which means Gap could be under even more pressure on Thursday.

With that said, Gap stock has surged 42.5% over the last year as it successfully faces down continued pressure from online sellers such as Amazon (AMZN - Free Report) , while also adapting to changing shopping patterns. However, a poor quarter could easily see Gap stock slip—at least in the near-term.

Gap Q1 Outlook

Our current Zacks Consensus Estimate is calling for Gap’s quarterly revenues to climb by 4.9% to touch $3.61 billion. Moving on to the opposite end of the income statement, the company’s adjusted quarterly earnings are projected to soar by 25% to reach $0.45 per share.

Unfortunately for investors, Gap has experienced some downward earnings estimate revision activity recently. Meanwhile, investors also need to understand what chance Gap has to top our earnings estimate as this could help its stock price climb, especially following its earnings release.

Luckily, Zacks Premium customers can utilize the Earnings ESP Screener in order to search for stocks that are expected to surprise, either way.

This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

In contrast, a stock with a Zacks Rank #3 (Hold) or worse, coupled with a negative Earnings ESP, is one that we typically want to avoid during earnings season.

Gap is currently a Zacks Rank #4 (Sell) and sports an Earnings ESP of -0.37%. This means that investors can consider GPS a stock that could fall short of quarterly earnings estimates when it reports its Q1 financial results after market close on Thursday.  

However, it is also worth remembering that the retailer’s earnings are still expected to surge by 25% from the year-ago period.

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