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Things You Need to Know About Gap (GPS) Prior to Q3 Earnings
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The Gap, Inc. (GPS - Free Report) is slated to report third-quarter fiscal 2018 results on Nov 20. Notably, the company has an impressive earnings surprise history, having outpaced estimates in five of the last six quarters. Further, it has an average four-quarter positive earnings surprise of 1.9%.
The Zacks Consensus Estimate for third-quarter earnings is pegged at 68 cents, mirroring 17.2% growth year over year. The consensus mark was revised downward over the past 30 days.
Let’s see how things are shaping up prior to the earnings announcement.
Factors Influencing 3Q18
Gap’s consistent focus on enhancing its omni-channel capabilities, including e-commerce growth by adopting numerous initiatives is commendable. Moreover, in a bid to strengthen its omni-channel services, the company has expanded online presence across all its brands and remains on track to launch a personalization engine powered by customer data. Its strategic efforts to improve product quality and responsiveness to changing consumer trends are an added positive.
Furthermore, the company’s growth strategy that mainly focuses on the Old Navy and Athleta brands bodes well. In fact, Gap remains on track to generate net sales of more than $10 billion and $1 billion from U.S. store expansion and e-commerce growth, respectively, at each of the brands in the coming years. In sync with this, the company’s plan to open about 25 stores in fiscal 2018 is likely to comprise more of Athleta and Old Navy stores. However, it intends to close Gap and Banana Republic stores to boost profitability.
Backed by all these initiatives, we expect the company to witness solid top- and bottom-line growth in the third quarter of fiscal 2018. Notably, Gap surpassed the sales estimates in last seven quarters now. The Zacks Consensus Estimate for sales stands at $3,995 million, up about 4% from the year-ago quarter. At Old Navy and Banana Republic, the consensus mark for sales is pegged at $1,897 million and $583 million, up 7.9% and 4.7% year over year, respectively.
Meanwhile, Gap has been witnessing robust comparable-store sales (comps) growth, which improved for the seventh straight quarter in second-quarter fiscal 2018. This upside can be attributed to solid momentum across Old Navy brand, gaining from strength in category and higher traffic.
However, softness across Gap’s namesake brand for quite a while now is worrisome. Apparently, comps fell 5% at Gap brand in the last reported quarter, mainly due to operational headwinds across timing of inventory and assortment issues. Persistent softness across Gap brand remains a concern, which might dent the overall comps growth and profitability. The consensus mark for sales at Gap brand stands at $1,309 million, down nearly 1% year over year.
Consequently, shares of Gap have lost 11.2% in the past three months, wider than the industry’s 4% decline.
Zacks Model
Our proven model does not conclusively show that Gap is likely to beat earnings estimates in the fiscal third quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Although Gap’s Zacks Rank #3 increases the chances of an earnings beat, its Earnings ESP of -5.05% makes surprise prediction difficult.
Stocks Likely to Beat Earnings Estimates
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:
Nordstrom, Inc. (JWN - Free Report) has an Earnings ESP of +4.52% and a Zacks Rank #2.
Ross Stores, Inc. (ROST - Free Report) has an Earnings ESP of +3.45% and a Zacks Rank #2.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Things You Need to Know About Gap (GPS) Prior to Q3 Earnings
The Gap, Inc. (GPS - Free Report) is slated to report third-quarter fiscal 2018 results on Nov 20. Notably, the company has an impressive earnings surprise history, having outpaced estimates in five of the last six quarters. Further, it has an average four-quarter positive earnings surprise of 1.9%.
The Zacks Consensus Estimate for third-quarter earnings is pegged at 68 cents, mirroring 17.2% growth year over year. The consensus mark was revised downward over the past 30 days.
The Gap, Inc. Price, Consensus and EPS Surprise
The Gap, Inc. Price, Consensus and EPS Surprise | The Gap, Inc. Quote
Let’s see how things are shaping up prior to the earnings announcement.
Factors Influencing 3Q18
Gap’s consistent focus on enhancing its omni-channel capabilities, including e-commerce growth by adopting numerous initiatives is commendable. Moreover, in a bid to strengthen its omni-channel services, the company has expanded online presence across all its brands and remains on track to launch a personalization engine powered by customer data. Its strategic efforts to improve product quality and responsiveness to changing consumer trends are an added positive.
Furthermore, the company’s growth strategy that mainly focuses on the Old Navy and Athleta brands bodes well. In fact, Gap remains on track to generate net sales of more than $10 billion and $1 billion from U.S. store expansion and e-commerce growth, respectively, at each of the brands in the coming years. In sync with this, the company’s plan to open about 25 stores in fiscal 2018 is likely to comprise more of Athleta and Old Navy stores. However, it intends to close Gap and Banana Republic stores to boost profitability.
Backed by all these initiatives, we expect the company to witness solid top- and bottom-line growth in the third quarter of fiscal 2018. Notably, Gap surpassed the sales estimates in last seven quarters now. The Zacks Consensus Estimate for sales stands at $3,995 million, up about 4% from the year-ago quarter. At Old Navy and Banana Republic, the consensus mark for sales is pegged at $1,897 million and $583 million, up 7.9% and 4.7% year over year, respectively.
Meanwhile, Gap has been witnessing robust comparable-store sales (comps) growth, which improved for the seventh straight quarter in second-quarter fiscal 2018. This upside can be attributed to solid momentum across Old Navy brand, gaining from strength in category and higher traffic.
However, softness across Gap’s namesake brand for quite a while now is worrisome. Apparently, comps fell 5% at Gap brand in the last reported quarter, mainly due to operational headwinds across timing of inventory and assortment issues. Persistent softness across Gap brand remains a concern, which might dent the overall comps growth and profitability. The consensus mark for sales at Gap brand stands at $1,309 million, down nearly 1% year over year.
Consequently, shares of Gap have lost 11.2% in the past three months, wider than the industry’s 4% decline.
Zacks Model
Our proven model does not conclusively show that Gap is likely to beat earnings estimates in the fiscal third quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Although Gap’s Zacks Rank #3 increases the chances of an earnings beat, its Earnings ESP of -5.05% makes surprise prediction difficult.
Stocks Likely to Beat Earnings Estimates
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:
American Eagle Outfitters, Inc. (AEO - Free Report) has an Earnings ESP of +2.95% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Nordstrom, Inc. (JWN - Free Report) has an Earnings ESP of +4.52% and a Zacks Rank #2.
Ross Stores, Inc. (ROST - Free Report) has an Earnings ESP of +3.45% and a Zacks Rank #2.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>