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Check Out Gap's (GPS) Probability to Beat Earnings in Q4

Zacks Equity Research

The Gap, Inc. GPS is slated to report fourth-quarter fiscal 2018 results on Feb 28.

Notably, the company has an impressive earnings surprise history, having outpaced estimates in six of the trailing seven quarters. Further, it delivered an average four-quarter earnings beat of 0.9%. The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 69 cents, mirroring 13.1% growth year over year. Estimates remained unchanged over the past 30 days.

The Gap, Inc. Price and EPS Surprise

The Gap, Inc. Price and EPS Surprise | The Gap, Inc. Quote

How Things Are Shaping Before 4Q18 Earnings

Gap’s consistent focus on enhancing its omni-channel capabilities including e-commerce growth by adopting numerous initiatives is encouraging. Apparently, the company has expanded online presence across all of its brands and is likely to reach the target of more than $3.5 billion sales in fiscal 2018. Its strategic efforts to improve product quality and responsiveness to changing consumer trends are an added positive.

Further, the company’s growth strategy that mainly focuses on the Old Navy and Athleta brands is boding well. Gap has been witnessing continued strength at its Old Navy brand fueled by higher traffic. Moreover, its Banana Republic brand has been reporting positive comparable-store sales (comps) for a while now. These, in turn, are likely to drive comps in fiscal 2018. Comps are anticipated to be flat to up slightly. Earnings are envisioned to be $2.55-$2.60 per share for the fiscal year.

Notably, Gap surpassed sales estimates in last eight quarters now. The Zacks Consensus Estimate for fourth-quarter sales at Old Navy stands at $2,178 million, up about 1% from the year-ago quarter. The consensus mark for overall quarterly sales is pegged at $4,720 million.

However, persistent softness across Gap’s namesake brand for quite a while now is a major concern. Apparently, comps fell 7% at the Gap brand in the last reported quarter mainly due to operational headwinds across the business and assortment issues. For fiscal 2018, management expects the brand’s results to be weak, which might dent the overall comps growth and profitability. The consensus mark for sales at the Gap brand is pinned at $1,532 million, mirroring a 4.6% decline year over year.

Zacks Model

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Gap’s Earnings ESP of +4.21% increases the chances of an earnings beat, its Zacks Rank #4 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:

Abercrombie & Fitch ANF has an Earnings ESP of +0.94% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Eagle Outfitters, Inc. AEO has an Earnings ESP of +0.60% and a Zacks Rank #2.

The Home Depot, Inc. HD has an Earnings ESP of +1.22% and a Zacks Rank #3.

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