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Gap Sends Mixed Signals Pre-Q2 Earnings: Time to Accumulate the Stock?
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Key Takeaways
Gap is projected to post Q2 revenues of $3.7B, up 0.5% Y/Y.
GAP's Q2 earnings are estimated at 55 cents per share, up 1.9% from last year.
Cost savings, digital growth and brand momentum aim to offset margin headwinds.
The Gap, Inc. (GAP - Free Report) is expected to register growth in its top and bottom lines when it reports second-quarter fiscal 2025 results on Aug. 28, after the closing bell. For revenues, the Zacks Consensus Estimate is pegged at $3.7 billion, indicating a 0.5% rise from the year-ago quarter’s reported figure.
The Zacks Consensus Estimate for fiscal second-quarter earnings is pegged at 55 cents per share, suggesting a 1.9% increase from the year-ago quarter’s reported figure. The consensus estimate for fiscal second-quarter earnings has remained stable in the past 30 days.
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, GAP’s earnings beat the Zacks Consensus Estimate by 15.9%. The company has a trailing four-quarter earnings surprise of 33.2%, on average. Given its positive record, the question is whether the stock can maintain its momentum.
Earnings Whispers for Gap
Our proven model does not conclusively predict 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. However, that is not the case here. You can uncover the best stocks before they are reported with our Earnings ESP Filter.
Gap currently has an Earnings ESP of +1.52% and a Zacks Rank #5 (Strong Sell).
What to Expect From GAP’s Q2 Earnings: Key Trends
Gap’s second-quarter fiscal 2025 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 second-quarter fiscal 2025.
GAP’s second-quarter fiscal 2025 results are expected to benefit from its strong execution, brand momentum and financial discipline, positioning it for sustained growth. As a longstanding force in the apparel industry, the company maintains a significant market presence through its diverse brand portfolio, which includes Old Navy, Banana Republic and Athleta.
On the last reported quarter’s earnings call, management guided flat sales year over year for the fiscal second quarter, reflecting mixed brand performance. Nonetheless, the strength at Old Navy and Gap provides confidence that the company can deliver steady results despite choppiness in parts of the portfolio.
Gap continues to strengthen its digital commerce presence, ranking as the #1 branded apparel e-commerce business in the United States. Management highlighted initiatives like AI-powered RFID and elevated digital storytelling campaigns, which are expected to enhance customer engagement and operational efficiency in the fiscal second quarter. With nearly 1.5 billion visitors to its e-commerce platforms over the past year, the digital channel remains a key growth engine.
Gap has been focused on enhancing supply-chain efficiency, implementing cost-saving strategies and driving digital transformation to improve operational agility and customer experience. At the same time, investments in product innovation, sustainability efforts and high-profile collaborations have helped attract younger consumers and reinforce the brand’s cultural relevance. International expansion and accelerated e-commerce adoption strengthen the company’s long-term positioning.
For the fiscal second quarter, Gap expects gross margin to remain similar to the first-quarter levels, with an implied year-over-year decline due to the absence of last year’s credit card agreement benefit. However, underlying merchandise margins are projected to remain stable. Additionally, the company continues to target $150 million in cost savings for fiscal 2025, providing a cushion to reinvest in growth initiatives while protecting margins.
Tariffs remain a looming headwind, but management emphasized minimal impact on the fiscal second quarter results. On the tariff front, the company has proactively diversified its sourcing. Notably, Gap has already reduced China sourcing to under 3% of its total and aims for no country to represent more than 25% by 2026. This proactive diversification, along with sourcing adjustments and product mix strategies, positions the company to manage external cost pressures while sustaining long-term profitability.
We expect the adjusted gross margin to increase 20 bps and adjusted operating expenses, as a percentage of sales, to decline 30 bps year over year for the fiscal second quarter. Our model indicates a decrease of 50 bps in the adjusted operating margin to 7.4% in the to-be-reported quarter.
The recent market movements show that GAP shares have lost 24.7% in the past three months against the industry's 3.4% growth.
GAP Stock's Price Performance
Image Source: Zacks Investment Research
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 9.7X, significantly below the Retail - Apparel and Shoes industry’s average of 18.22X, the stock offers compelling value for investors seeking exposure to the sector.
GAP Stock's P/E Valuation
Image Source: Zacks Investment Research
Stocks With the Favorable Combination
Here are some companies, which, according to our model, have the right combination of elements to beat on earnings this reporting cycle.
Abercrombie & Fitch Co. (ANF - Free Report) presently has an Earnings ESP of +2.62% and a Zacks Rank of 3. ANF’s earnings per share for the second quarter of fiscal 2025 are expected to decrease 9.2% on a year-over-year basis. The consensus mark for its quarterly earnings has moved up 0.9% to $2.27 per share in the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie’s quarterly revenues is pegged at $1.19 billion, which suggests growth of 4.8% from the figure reported in the prior-year quarter. ANF has a trailing four-quarter earnings surprise of 11.2%, on average.
DICK'S Sporting Goods (DKS - Free Report) currently has an Earnings ESP of +0.62% and a Zacks Rank of 3. The company is expected to register a bottom-line decrease when it reports second-quarter fiscal 2025 results. The Zacks Consensus Estimate for quarterly earnings per share of $4.29 suggests a decline of 1.8% from the year-ago quarter.
The consensus mark for revenues is pegged at $3.60 billion, indicating growth of 3.6% from the figure reported in the year-ago quarter. DKS has a trailing four-quarter earnings surprise of 5.6%, on average.
Dollar Tree Inc. (DLTR - Free Report) currently has an Earnings ESP of +9.63% and a Zacks Rank of 3. The company is likely to register a decline in its top and bottom lines when it reports second-quarter fiscal 2025 results. The consensus mark for DLTR’s quarterly revenues is pegged at $4.5 billion, which indicates a plunge of 39.7% from the figure reported in the prior-year quarter.
The Zacks Consensus Estimate for Dollar Tree’s earnings has moved up by a penny in the past 30 days to 37 cents per share. The consensus estimate indicates a decline of 44.8% from the year-ago quarter’s actual. DLTR delivered a negative trailing four-quarter earnings surprise of 6.9%, on average.
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Gap Sends Mixed Signals Pre-Q2 Earnings: Time to Accumulate the Stock?
Key Takeaways
The Gap, Inc. (GAP - Free Report) is expected to register growth in its top and bottom lines when it reports second-quarter fiscal 2025 results on Aug. 28, after the closing bell. For revenues, the Zacks Consensus Estimate is pegged at $3.7 billion, indicating a 0.5% rise from the year-ago quarter’s reported figure.
The Zacks Consensus Estimate for fiscal second-quarter earnings is pegged at 55 cents per share, suggesting a 1.9% increase from the year-ago quarter’s reported figure. The consensus estimate for fiscal second-quarter earnings has remained stable in the past 30 days.
The Gap, Inc. Price, Consensus and EPS Surprise
The Gap, Inc. price-consensus-eps-surprise-chart | The Gap, Inc. Quote
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, GAP’s earnings beat the Zacks Consensus Estimate by 15.9%. The company has a trailing four-quarter earnings surprise of 33.2%, on average. Given its positive record, the question is whether the stock can maintain its momentum.
Earnings Whispers for Gap
Our proven model does not conclusively predict 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. However, that is not the case here. You can uncover the best stocks before they are reported with our Earnings ESP Filter.
Gap currently has an Earnings ESP of +1.52% and a Zacks Rank #5 (Strong Sell).
What to Expect From GAP’s Q2 Earnings: Key Trends
Gap’s second-quarter fiscal 2025 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 second-quarter fiscal 2025.
GAP’s second-quarter fiscal 2025 results are expected to benefit from its strong execution, brand momentum and financial discipline, positioning it for sustained growth. As a longstanding force in the apparel industry, the company maintains a significant market presence through its diverse brand portfolio, which includes Old Navy, Banana Republic and Athleta.
On the last reported quarter’s earnings call, management guided flat sales year over year for the fiscal second quarter, reflecting mixed brand performance. Nonetheless, the strength at Old Navy and Gap provides confidence that the company can deliver steady results despite choppiness in parts of the portfolio.
Gap continues to strengthen its digital commerce presence, ranking as the #1 branded apparel e-commerce business in the United States. Management highlighted initiatives like AI-powered RFID and elevated digital storytelling campaigns, which are expected to enhance customer engagement and operational efficiency in the fiscal second quarter. With nearly 1.5 billion visitors to its e-commerce platforms over the past year, the digital channel remains a key growth engine.
Gap has been focused on enhancing supply-chain efficiency, implementing cost-saving strategies and driving digital transformation to improve operational agility and customer experience. At the same time, investments in product innovation, sustainability efforts and high-profile collaborations have helped attract younger consumers and reinforce the brand’s cultural relevance. International expansion and accelerated e-commerce adoption strengthen the company’s long-term positioning.
For the fiscal second quarter, Gap expects gross margin to remain similar to the first-quarter levels, with an implied year-over-year decline due to the absence of last year’s credit card agreement benefit. However, underlying merchandise margins are projected to remain stable. Additionally, the company continues to target $150 million in cost savings for fiscal 2025, providing a cushion to reinvest in growth initiatives while protecting margins.
Tariffs remain a looming headwind, but management emphasized minimal impact on the fiscal second quarter results. On the tariff front, the company has proactively diversified its sourcing. Notably, Gap has already reduced China sourcing to under 3% of its total and aims for no country to represent more than 25% by 2026. This proactive diversification, along with sourcing adjustments and product mix strategies, positions the company to manage external cost pressures while sustaining long-term profitability.
We expect the adjusted gross margin to increase 20 bps and adjusted operating expenses, as a percentage of sales, to decline 30 bps year over year for the fiscal second quarter. Our model indicates a decrease of 50 bps in the adjusted operating margin to 7.4% in the to-be-reported quarter.
Gap’s Price Performance & Valuation Look Promising
The recent market movements show that GAP shares have lost 24.7% in the past three months against the industry's 3.4% growth.
GAP Stock's Price Performance
Image Source: Zacks Investment Research
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 9.7X, significantly below the Retail - Apparel and Shoes industry’s average of 18.22X, the stock offers compelling value for investors seeking exposure to the sector.
GAP Stock's P/E Valuation
Image Source: Zacks Investment Research
Stocks With the Favorable Combination
Here are some companies, which, according to our model, have the right combination of elements to beat on earnings this reporting cycle.
Abercrombie & Fitch Co. (ANF - Free Report) presently has an Earnings ESP of +2.62% and a Zacks Rank of 3. ANF’s earnings per share for the second quarter of fiscal 2025 are expected to decrease 9.2% on a year-over-year basis. The consensus mark for its quarterly earnings has moved up 0.9% to $2.27 per share in the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie’s quarterly revenues is pegged at $1.19 billion, which suggests growth of 4.8% from the figure reported in the prior-year quarter. ANF has a trailing four-quarter earnings surprise of 11.2%, on average.
DICK'S Sporting Goods (DKS - Free Report) currently has an Earnings ESP of +0.62% and a Zacks Rank of 3. The company is expected to register a bottom-line decrease when it reports second-quarter fiscal 2025 results. The Zacks Consensus Estimate for quarterly earnings per share of $4.29 suggests a decline of 1.8% from the year-ago quarter.
The consensus mark for revenues is pegged at $3.60 billion, indicating growth of 3.6% from the figure reported in the year-ago quarter. DKS has a trailing four-quarter earnings surprise of 5.6%, on average.
Dollar Tree Inc. (DLTR - Free Report) currently has an Earnings ESP of +9.63% and a Zacks Rank of 3. The company is likely to register a decline in its top and bottom lines when it reports second-quarter fiscal 2025 results. The consensus mark for DLTR’s quarterly revenues is pegged at $4.5 billion, which indicates a plunge of 39.7% from the figure reported in the prior-year quarter.
The Zacks Consensus Estimate for Dollar Tree’s earnings has moved up by a penny in the past 30 days to 37 cents per share. The consensus estimate indicates a decline of 44.8% from the year-ago quarter’s actual. DLTR delivered a negative trailing four-quarter earnings surprise of 6.9%, on average.