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Gap (GPS) to Report Q3 Earnings: What's in the Offing?

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The Gap, Inc. (GPS - Free Report) is scheduled to report third-quarter fiscal 2019 numbers on Nov 21, after market close. We note that the company’s bottom line has outperformed the Zacks Consensus Estimate in three of the last four quarters. In the last reported quarter, the company delivered a positive earnings surprise of 21.2%.

The Zacks Consensus Estimate for third-quarter earnings has moved south by 2 cents over the past seven days to 53 cents. This suggests a decline of 23.2% from the year-ago quarter’s reported figure.

For revenues, the consensus mark is pegged at $4,053.9 million, indicating a decrease of 0.9% from the figure reported in the year-ago quarter.

Notably, the Zacks Consensus Estimate for revenues for Gap brand suggests a decline of 10.4% to $1,150 million. Also, the Zacks Consensus Estimate for revenues for Banana Republic and Old Navy is pegged at $584 and $1,935, respectively, which indicates a decrease of 2.8% and 0.6%.

The Gap, Inc. Price, Consensus and EPS Surprise


Key Things to Note

Persistent softness across Gap’s namesake brand has been hurting its comparable store sales (comps) and in turn the top line. In a recent release, management reported that comps for the Gap brand fell 7% in the third quarter. Also, comps at Banana Republic and Old Navy declined 3% and 4%, respectively.

Management stated that the quarter remained challenging, due to macroeconomic headwinds and sluggish traffic, as well as product and operating hurdles in core brands. The company issued its third-quarter earnings view, which suggests a sharp decline from the year-ago quarter reported figure.

The company expects adjusted earnings per share to be around 50-52 cents. The company had reported earnings per share of 69 cents in the year-ago quarter.

We note that the company has been grappling with soft margins for a while now. In the last reported quarter, both gross and operating margin contracted 90 and 140 basis points, respectively. Nonetheless, management had pointed marginal deleverage in gross margin during the third quarter better than first-half trends.

A Sneak Peek Into the Fundamentals

Gap’s omni-channel capabilities, including e-commerce and store expansion, are commendable. The company has expanded online presence across all brands. Notably, its online division is one of the most profitable segments. Gap has rolled out the Buy Online Pick up in Store (BOPIS) for its Old Navy brand throughout the nation, which has been receiving positive customer response. Moreover, it remains committed toward store openings for Athleta and Old Navy as well as the Gap brand in China.

Zacks Model

Our proven model doesn’t 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. But that’s not the case here.

Gap carries a Zacks Rank #4 (Sell) and has an Earnings ESP of -1.15%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks Poised to Beat Earnings Estimates

Here are a few companies you may want to consider, as our model shows that these have the right combination to post an earnings beat:

Dollar General Corporation (DG - Free Report) has an Earnings ESP of +2.34% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ross Stores, Inc. (ROST - Free Report) has an Earnings ESP of +4.03% and a Zacks Rank #2.

Foot Locker, Inc. (FL - Free Report) has an Earnings ESP of +0.64% and a Zacks Rank #3.

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