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Gap (GPS) Q3 Earnings: What's in the Cards for the Stock?

GPS URBN DKS HIBB

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The Gap, Inc. (GPS - Free Report) is slated to report third-quarter fiscal 2016 results on Nov 17. Last quarter, the company delivered a positive earnings surprise of 1.7%, prior to which it posted in-line earnings for five straight quarters. Let’s see how things are shaping up for this announcement.

GAP INC Price and EPS Surprise
 

GAP INC Price and EPS Surprise | GAP INC Quote

Factors Influencing This Quarter

Gap recently came out with sales and comparable store sales (comps) results for the month of October and the third quarter of fiscal 2016. While comps dipped year over year for both periods, bearing the brunt of the campus fire at Fishkill distribution center and persistent softness across its Banana Republic and namesake brands, results largely gained from strong Old Navy performance. The Old Navy brand spelled out positive results for both periods, driven by favorable consumer response for its product assortments. Also, management stated that the merchandise margins for October were significantly higher than expected. This more than mitigated the negatives arising from the distribution center fire, mainly on estimated earnings due to lost sales and higher logistics costs.

Notably, management’s efforts to revive the Old Navy brand have started to pay off, thus keeping pace with the company’s recently chalked-out strategic plan that advocates positioning it to match the accelerated pace of change in the apparel industry. The company 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.

Following its third quarter and October sales results, management issued favorable earnings guidance for the third quarter, where it expects to report earnings per share (GAAP) of 50−51 cents. Excluding the effects of its store closures and streamlining initiatives, the company anticipates adjusted earnings per share in the range of 59−60 cents. While troubles like fashion misses, currency headwinds, constant weakness across most brands and the campus fire are looming over Gap, we believe its calculated plan provides the needed boost to turn its operating performance around. So, let’s see what the company has in store for its investors with the upcoming results.

Earnings Whispers

Our proven model does not conclusively show that Gap is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Gap currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 60 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Gap’s Zacks Rank #2 (Buy) increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

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

Dick's Sporting Goods Inc. (DKS - Free Report) , which is scheduled to release earnings on Nov 15, has an Earnings ESP of +2.38%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hibbett Sports Inc. (HIBB - Free Report) , with a Zacks Rank #2, is expected to report earnings on Nov 18 and currently has an Earnings ESP of +4.00%.

Urban Outfitters Inc. (URBN - Free Report) , with a Zacks Rank #3 (Hold), is scheduled to release earnings on Nov 22 and has an Earnings ESP of +4.55%.

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