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Factors Likely to Influence The Gap's (GPS) Earnings in Q4

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The Gap, Inc. (GPS - Free Report) is scheduled to report fourth-quarter fiscal 2020 numbers on Mar 4, after market close. The premier international clothing and accessories retailer is likely to have registered top and bottom-line declines in fourth-quarter fiscal 2020.

The Zacks Consensus Estimate for fiscal fourth-quarter earnings of 17 cents suggests a 70.7% decline from the prior-year quarter’s reported earnings of 58 cents. The consensus mark has moved north by a penny in the past 30 days. For revenues, the consensus mark is pegged at $4.67 billion, indicating a decline of 0.2% from the figure reported in the year-ago quarter.

In the last reported quarter, the company missed earnings estimates by 13.8%. However, the bottom line lagged the consensus mark by 43%, on average, in the trailing four quarters.

The Gap, Inc. Price and EPS Surprise


The Gap, Inc. Price and EPS Surprise

The Gap, Inc. price-eps-surprise | The Gap, Inc. Quote

Key Factors to Note

The Gap has been gaining from robust online momentum and a solid performance by its powerhouse brand — Old Navy — as well as smaller brands such as Athleta. This led to sequential growth in third-quarter fiscal 2020 results, with positive comparable sales (comps). Further, continued growth in the e-commerce business has contributed significantly to the company’s consolidated sales. Gains from continued strength in brands and e-commerce are likely to get reflected in the company’s fiscal fourth-quarter results.

Moreover, the company has been witnessing a significant acceleration in the digital business since the start of the pandemic, driven by the Old Navy brand’s performance on the back of robust customer demand. Further, its smaller brands namely Athleta have been acting as a growth driver. Notably, the Athleta brand’s value-driven active and lifestyle categories, increased digital marketing investments, and focus on product strategy have been aiding sales.

On the last reported quarter’s earnings call, management pointed out that it remains optimistic about the company’s fourth-quarter fiscal 2020 results (ending January 2021). It noted that increased investments in digital capabilities, including curbside pickup options, and its loyalty program are expected to contribute to a robust holiday shopping season. As a result, it earlier expected fourth-quarter fiscal 2020 net sales to be equal to or slightly higher than the year-ago quarter’s reported figure. Gross margin is forecast to be flat year over year on gains from store closures, considerably offset by higher shipping expenses.

However, The Gap has been witnessing the loss of in-store sales for the past few quarters, which have been weighing its top line. Sluggish store traffic due to the rising COVID-19 cases has been impacting in-store sales. Further, the shift in consumers’ demands to more casual fashion in a bid to meet stay-at-home requirements has been weighing on its Gap and Banana Republic brands’ sales, as these specialize in workwear assortments.

Also, higher operating expenses, driven by elevated spending toward health and safety measures at stores, and a significant rise in marketing expenses across all brands have been headwinds. Moreover, higher shipping expenses to fulfill the increased online orders are likely to have been concerning. The impacts of sluggish traffic at stores and higher expenses are likely to have partly offset top and bottom-line growth in the to-be-reported quarter.

Zacks Model

Our proven model conclusively predicts an earnings beat for The Gap this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The Gap has a Zacks Rank #3 and an Earnings ESP of +7.03%.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies you may want to consider, as our model shows that these also have the right combination of elements to post an earnings beat.

Dollar Tree, Inc. (DLTR - Free Report) currently has an Earnings ESP of +1.94% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

DICK’S Sporting Goods, Inc. (DKS - Free Report) presently has an Earnings ESP of +3.70% and a Zacks Rank #2.

Dollar General Corporation (DG - Free Report) currently has an Earnings ESP of +1.23% and a Zacks Rank #3.

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