We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
The Zacks Consensus Estimate for fiscal fourth-quarter earnings is pegged at 36 cents per share, suggesting a 26.5% decline from the year-ago quarter’s reported figure. The consensus estimate for fiscal fourth-quarter earnings has been unchanged in the past 30 days. For revenues, the consensus mark is pegged at $4.1 billion, indicating a 5.4% rise from the year-ago quarter’s reported figure.
The San Francisco, CA-based company has been reporting steady earnings outcomes, as evident from its positive top and bottom-line surprise trends in the trailing four quarters. In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 28.6%. GAP has a trailing four-quarter earnings surprise of 101.2%, on average. Given its positive record, the question is whether the stock can maintain its momentum.
Earnings Whispers for GAP
Our proven model conclusively predicts an earnings beat for 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 before they are reported with our Earnings ESP Filter.
GAP’s fourth-quarter fiscal 2024 results are expected to reflect its ability to gain market share and revive its brand position. Management has been committed to creating a trend-right merchandise assortment, deepening relations with customers via marketing, enhancing the digital commerce agenda and efficiently controlling expenses. Gains from these actions are expected to have bolstered the company’s performance in fourth-quarter fiscal 2024.
Fueled by optimism around its holiday collection, Gap raised its fiscal 2024 outlook. In the fourth quarter of fiscal 2024, the company prioritized enhanced experiences for online and in-store shoppers by refreshing product imagery on its website and remodeling 15% of its stores. Gap was committed to executing with excellence in the fiscal fourth quarter.
Strong performances in the fiscal third quarter and the early fourth quarter positioned the company well for the holiday season. This has bolstered its confidence to raise its fiscal 2024 outlook for sales, gross margin and operating income growth. As a result, management forecast sales growth of 1.5-2% on a 52-week basis for fiscal 2024, implying fourth-quarter net sales growth of 1-2%.
The company’s fourth-quarter fiscal 2024 performance is expected to have gained from improved margins, driven by lower airfreight and increased promotional activity. Lower advertising expenses and technology investments from cost-saving actions bode well. The company has been aggressively undertaking cost-management actions, which are expected to have improved its performance in the to-be-reported quarter.
On the last reported quarter’s earnings call, Gap anticipated the gross margin to expand at least 220 basis points (bps) year over year for fiscal 2024, including 100 bps of commodity cost gains realized in the first half of the fiscal year. This improvement was driven by commodity cost tailwinds in the first half of fiscal 2024, improved inventory management and relatively neutral ROD. In fourth-quarter fiscal 2024, the gross margin is expected to have been consistent with last year. Operating income for fiscal 2024 is projected to increase year over year in the mid-to-high 60%. This represents substantial progress toward restoring historical operating profit levels.
We expect the adjusted gross margin to expand 210 basis points for fiscal 2024. Our model projects adjusted operating income to surge 69.1% year over year in fiscal 2024, with an operating margin of 6.8%. Our model predicts year-over-year adjusted operating expenses to decline 7.1% for the fourth quarter and 1.1% in fiscal 2024.
Gap has been navigating an uncertain macroeconomic environment, including inflationary pressures and other challenges, which are expected to have impacted its top-line performance in the to-be-reported quarter. A decline in consumer confidence — a key economic indicator — could have further affected spending. Rising operating and SG&A expenses may put pressure on the company’s profitability for the fiscal fourth quarter.
The company’s shares have exhibited an uptrend in the past year, rising 17.7%, leaving behind its industry peers and the S&P 500. In the past year, the apparel retailer’s shares have jumped 17.7%, outperforming the industry’s growth of 4.9% and the S&P 500’s rally of 17.1%. Meanwhile, the stock has underperformed the sector’s rise of 24% in the same period.
The Gap stock has displayed a significant rally compared with Deckers Outdoor (DECK - Free Report) , American Eagle Outfitters Inc. (AEO - Free Report) and Abercrombie & Fitch’s (ANF - Free Report) declines of 9.7%, 45.7% and 25%, respectively, in the past year.
GAP's One-Year Price Performance
Image Source: Zacks Investment Research
At the current price of $22.61, the stock trades at a 26.1% discount to its 52-week high of $30.59. The company trades at a 19.3% premium to its 52-week low mark of $18.95.
From a valuation perspective, Gap shares present an attractive opportunity, trading at a discount to industry benchmarks. With a forward 12-month price-to-earnings ratio of 10.45X, below the Retail - Apparel and Shoes industry’s average of 17.94X, the stock offers compelling value for investors seeking exposure to the sector. The stock currently has a Value Score of A, validating its appeal.
Image Source: Zacks Investment Research
Investment Thesis
Gap has established a strong presence with its four distinct brands — Gap, Old Navy, Banana Republic and Athleta — each targeting different market segments and contributing to diversified revenue streams. Its recent turnaround highlights the resilience of its business model and effective cost management.
The company is positioning itself for sustained growth by curating trend-forward merchandise, enhancing customer engagement through marketing, expanding its digital commerce efforts and optimizing costs. By leveraging its rich retail heritage and iconic brand portfolio, GAP continues to implement key initiatives to drive long-term success in an evolving retail landscape.
Conclusion
As Gap prepares to release its fourth-quarter fiscal 2024 earnings results, key strengths, such as brand power, digital transformation, sustainability, global expansion, product innovation, operational efficiency, strong leadership and a customer-focused strategy, signal positive momentum. These initiatives position the company to navigate retail challenges and emerge stronger. With solid fundamentals, Gap remains a strong long-term investment, regardless of short-term stock movements post fiscal fourth-quarter earnings results.
GAP’s strong share price performance, coupled with a relatively lower valuation than its peers, presents an appealing opportunity for investors ahead of its fiscal fourth-quarter results. If you already own the Gap stock, hold on to it, as its upcoming earnings report is likely to reinforce its strong trajectory.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Gap's Pre-Q4 Earnings Report: Is Holiday Strength a Buy Signal?
The Gap, Inc. (GAP - Free Report) is expected to register top and bottom-line declines when it reports fourth-quarter fiscal 2024 results on March 6, after the closing bell.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
The Zacks Consensus Estimate for fiscal fourth-quarter earnings is pegged at 36 cents per share, suggesting a 26.5% decline from the year-ago quarter’s reported figure. The consensus estimate for fiscal fourth-quarter earnings has been unchanged in the past 30 days. For revenues, the consensus mark is pegged at $4.1 billion, indicating a 5.4% rise from the year-ago quarter’s reported figure.
The San Francisco, CA-based company has been reporting steady earnings outcomes, as evident from its positive top and bottom-line surprise trends in the trailing four quarters. In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 28.6%. GAP has a trailing four-quarter earnings surprise of 101.2%, on average. Given its positive record, the question is whether the stock can maintain its momentum.
Earnings Whispers for GAP
Our proven model conclusively predicts an earnings beat for 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 before they are reported with our Earnings ESP Filter.
Gap currently has an Earnings ESP of +11.55% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
What to Expect From GAP’s Q4 Earnings: Key Trends
GAP’s fourth-quarter fiscal 2024 results are expected to reflect its ability to gain market share and revive its brand position. Management has been committed to creating a trend-right merchandise assortment, deepening relations with customers via marketing, enhancing the digital commerce agenda and efficiently controlling expenses. Gains from these actions are expected to have bolstered the company’s performance in fourth-quarter fiscal 2024.
Fueled by optimism around its holiday collection, Gap raised its fiscal 2024 outlook. In the fourth quarter of fiscal 2024, the company prioritized enhanced experiences for online and in-store shoppers by refreshing product imagery on its website and remodeling 15% of its stores. Gap was committed to executing with excellence in the fiscal fourth quarter.
Strong performances in the fiscal third quarter and the early fourth quarter positioned the company well for the holiday season. This has bolstered its confidence to raise its fiscal 2024 outlook for sales, gross margin and operating income growth. As a result, management forecast sales growth of 1.5-2% on a 52-week basis for fiscal 2024, implying fourth-quarter net sales growth of 1-2%.
The company’s fourth-quarter fiscal 2024 performance is expected to have gained from improved margins, driven by lower airfreight and increased promotional activity. Lower advertising expenses and technology investments from cost-saving actions bode well. The company has been aggressively undertaking cost-management actions, which are expected to have improved its performance in the to-be-reported quarter.
The Gap, Inc. Price and EPS Surprise
The Gap, Inc. price-eps-surprise | The Gap, Inc. Quote
On the last reported quarter’s earnings call, Gap anticipated the gross margin to expand at least 220 basis points (bps) year over year for fiscal 2024, including 100 bps of commodity cost gains realized in the first half of the fiscal year. This improvement was driven by commodity cost tailwinds in the first half of fiscal 2024, improved inventory management and relatively neutral ROD. In fourth-quarter fiscal 2024, the gross margin is expected to have been consistent with last year. Operating income for fiscal 2024 is projected to increase year over year in the mid-to-high 60%. This represents substantial progress toward restoring historical operating profit levels.
We expect the adjusted gross margin to expand 210 basis points for fiscal 2024. Our model projects adjusted operating income to surge 69.1% year over year in fiscal 2024, with an operating margin of 6.8%. Our model predicts year-over-year adjusted operating expenses to decline 7.1% for the fourth quarter and 1.1% in fiscal 2024.
Gap has been navigating an uncertain macroeconomic environment, including inflationary pressures and other challenges, which are expected to have impacted its top-line performance in the to-be-reported quarter. A decline in consumer confidence — a key economic indicator — could have further affected spending. Rising operating and SG&A expenses may put pressure on the company’s profitability for the fiscal fourth quarter.
Gap’s Price Performance & Valuation Look Promising
The company’s shares have exhibited an uptrend in the past year, rising 17.7%, leaving behind its industry peers and the S&P 500. In the past year, the apparel retailer’s shares have jumped 17.7%, outperforming the industry’s growth of 4.9% and the S&P 500’s rally of 17.1%. Meanwhile, the stock has underperformed the sector’s rise of 24% in the same period.
The Gap stock has displayed a significant rally compared with Deckers Outdoor (DECK - Free Report) , American Eagle Outfitters Inc. (AEO - Free Report) and Abercrombie & Fitch’s (ANF - Free Report) declines of 9.7%, 45.7% and 25%, respectively, in the past year.
GAP's One-Year Price Performance
Image Source: Zacks Investment Research
At the current price of $22.61, the stock trades at a 26.1% discount to its 52-week high of $30.59. The company trades at a 19.3% premium to its 52-week low mark of $18.95.
From a valuation perspective, Gap shares present an attractive opportunity, trading at a discount to industry benchmarks. With a forward 12-month price-to-earnings ratio of 10.45X, below the Retail - Apparel and Shoes industry’s average of 17.94X, the stock offers compelling value for investors seeking exposure to the sector. The stock currently has a Value Score of A, validating its appeal.
Image Source: Zacks Investment Research
Investment Thesis
Gap has established a strong presence with its four distinct brands — Gap, Old Navy, Banana Republic and Athleta — each targeting different market segments and contributing to diversified revenue streams. Its recent turnaround highlights the resilience of its business model and effective cost management.
The company is positioning itself for sustained growth by curating trend-forward merchandise, enhancing customer engagement through marketing, expanding its digital commerce efforts and optimizing costs. By leveraging its rich retail heritage and iconic brand portfolio, GAP continues to implement key initiatives to drive long-term success in an evolving retail landscape.
Conclusion
As Gap prepares to release its fourth-quarter fiscal 2024 earnings results, key strengths, such as brand power, digital transformation, sustainability, global expansion, product innovation, operational efficiency, strong leadership and a customer-focused strategy, signal positive momentum. These initiatives position the company to navigate retail challenges and emerge stronger. With solid fundamentals, Gap remains a strong long-term investment, regardless of short-term stock movements post fiscal fourth-quarter earnings results.
GAP’s strong share price performance, coupled with a relatively lower valuation than its peers, presents an appealing opportunity for investors ahead of its fiscal fourth-quarter results. If you already own the Gap stock, hold on to it, as its upcoming earnings report is likely to reinforce its strong trajectory.