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Factors Likely to Decide Gap's (GPS) Fate in Q1 Earnings

Zacks Equity Research

The Gap, Inc. GPS is slated to report first-quarter fiscal 2019 results on May 30.

Notably, the company has an impressive earnings surprise history, having outpaced the Zacks Consensus Estimate in seven of the trailing eight quarters. It also delivered an average four-quarter earnings beat of 1.2%. Let’s see how things are shaping up ahead of the upcoming release.

How Are Estimates Faring?

The Zacks Consensus Estimate for first-quarter earnings is pegged at 31 cents per share, indicating a 13.1% decline from the figure registered a year ago. We note that the Zacks Consensus Estimate has been revised downward by a penny over the past 30 days. For quarterly revenues, the consensus mark stands at $3,756 million, implying a marginal decline of 0.7% from the year-ago quarter reported number.

The Gap, Inc. Price and EPS Surprise

The Gap, Inc. Price and EPS Surprise

The Gap, Inc. price-eps-surprise | The Gap, Inc. Quote

Factors at Play

Persistent softness across Gap’s namesake brand has been hurting the company’s comparable store sales (comps) and this might pose a concern in the to-be-reported quarter. Weakness across the brand can be attributed to operational headwinds in its business and assortment issues. In fourth-quarter fiscal 2018, comps for the Gap brand fell 5%. Also, the company’s total comps inched down 1% in the last reported quarter. Soft comps along with adverse foreign currency impacts have been weighing on the company’s top line, which declined 3.2% in the fiscal fourth quarter. Nevertheless, management is revamping the Gap brand by streamlining its specialty fleet and renewing the marketing model for enhancing customer engagement and loyalty.

We believe that Gap’s consistent focus on enhancing its omni-channel capabilities including e-commerce growth remains encouraging. Moreover, the company has been gaining from its solid focus on enhancing product quality and responsiveness to changing consumer trends. Impressively, the company’s e-commerce business remained sturdy in the fiscal fourth quarter, witnessing double-digit growth in traffic and conversion. Positive trends in this business are likely to continue in the to-be-reported quarter. Additionally, the company has been experiencing strong momentum at its Old Navy brand fueled by higher traffic. This will aid the company’s performance in the fiscal first quarter.

Zacks Model

Our proven model does not conclusively show that Gap is likely to beat earnings estimates in first-quarter fiscal 2019. This is because a stock needs to have — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. 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 Zacks Rank #3 increases the chances of an earnings beat, its Earnings ESP of -3.91% 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:

lululemon athletica inc. LULU has an Earnings ESP of +1.57% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch ANF has an Earnings ESP of +0.26% and a Zacks Rank #2.

Costco Wholesale Corporation COST has an Earnings ESP of +2.10% and a Zacks Rank #3.

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Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
 
The Gap, Inc. (GPS) : Free Stock Analysis Report
 
lululemon athletica inc. (LULU) : Free Stock Analysis Report
 
Costco Wholesale Corporation (COST) : Free Stock Analysis Report
 
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