The Gap, Inc. (GPS) is set to declare second-quarter 2013 results on Aug 22. In the last quarter, the company’s earnings surpassed the year-over-year earnings by 51.1% and the Zacks Consensus Estimate by 2.9%. Let us now look at how things have developed for the imminent announcement.
Growth Factors in the Past Quarter
The year-over-year improvement in the first quarter results was driven by robust top-line growth and improved margins. Gap witnessed considerable recovery in its comparable sales and total sales performances, driven by its consistent endeavors to remain buoyed on the growth trajectory. Moreover, Gap was successful in controlling operating expenses. The company is taking a balanced approach in reviving its brands, while keeping its focus on controlling inventories and maximizing gross profits.
Our proven model does not conclusively project Gap as beating earnings this quarter. A stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, 2 or 3 to surpass earnings estimates. However, that is not the case here due to the following factors:
Zacks ESP: ESP for Gap is 0.00% since the Most Accurate Estimate stands at 64 cents, which is in line with the Zacks Consensus Estimate.
Zacks #2 Rank (Buy): Gap’s Zacks Rank #2 increases the forecasting power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call. We caution against stocks with Zacks Rank #4 and 5 (Sell rated stocks) going into earnings announcement, especially when the company is undergoing negative estimate revisions.
Other Stocks to Consider
Gap is not the only firm we are looking up to this earnings season. Our model shows that the following stocks have the right combination of elements to post an earnings beat this quarter:
Citi Trends, Inc. (CTRN), Earnings ESP of +2.33% and a Zacks Rank #2 (Buy).
New York & Company Inc. (NWY), Earnings ESP of +33.33% and a Zacks Rank #3 (Hold).
Cabela's Incorporated (CAB), Earnings ESP of +4.17% and a Zacks Rank #3 (Hold).
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