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Factors Likely to Decide Gap's (GPS) Fate in Q3 Earnings

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The Gap, Inc. GPS is scheduled to report third-quarter fiscal 2021 numbers on Nov 23. The premier international clothing and accessories retailer is expected to have registered top and bottom-line growth in third-quarter fiscal 2021.

The Zacks Consensus Estimate for the fiscal third quarter is pegged at 50 cents, suggesting a sharp improvement of 100% from 25 cents reported in the prior-year quarter. The consensus mark has gone down by a penny in the past seven days. For revenues, the consensus mark is pegged at $4.47 billion, indicating 12% growth from that reported in the year-ago quarter.

In the last reported quarter, the company reported an earnings surprise of 48.9%. The bottom line also beat the consensus mark by 650%, on average, in the trailing four quarters.

The Gap, Inc. Price and EPS Surprise

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

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

Key Factors to Note

Gap has been gaining from continued strength at Old Navy and Athleta brands as well as renewed momentum at Banana Republic. Improved marketing efforts, better brand management and advanced technology bode well. GPS’ powerhouse brand Old Navy is expected to have gained from customer acquisitions, stemming from the strong demand for the loyalty launch and the introduction of inclusive sizing via the BODEQUALITY launch in the to-be-reported quarter.

The company has also been experiencing significant progress in its smaller brands. The Athleta brand’s value-driven active and lifestyle categories, increased digital marketing investments, and focus on product strategy have been aiding sales. Athleta is likely to have witnessed strength in performance lifestyle products, strong customer loyalty and the inclusive sizing strategy. Increased brand awareness and the launch of its digital platform AthletaWell also bode well.

Gap has been witnessing strength in the online business, which is expected to have continued in the quarter under review. Gains from its e-commerce business have been contributing significantly to its Gap, Old Navy and Athleta brands. Its online business has also been benefiting from the company’s dominant omni-channel strength, increased focus on mobile experience and the launch of the native Android app. The company’s fiscal third-quarter results are anticipated to reflect gains from improved margins due to lower rent and occupancy costs.

However, the company has been witnessing higher marketing expenses across all brands as well as a rise in compensation costs. Also, the loss of in-store sales, led by permanent closures of the Gap and Banana Republic brand stores, is expected to have been concerning.

Zacks Model

Our proven model does not conclusively predict an earnings beat for Gap this season. 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Gap has a Zacks Rank #3 but an Earnings ESP of -1.56%.

Stocks Poised 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.

Costco Wholesale COST currently has an Earnings ESP of +1.00% and it sports a Zacks Rank of 1. The company is anticipated to register an increase in the bottom and top lines when it reports first-quarter fiscal 2022 results. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for COST’s quarterly earnings moved up 2.8% in the last 30 days to $2.59 per share and the same suggests a 13.1% jump from the year-ago quarter’s reported number.

The Zacks Consensus Estimate for Costco’s quarterly revenues is pegged at $49.6 billion, which suggests a rise of 14.8% from the figure reported in the prior-year quarter. COST stock has gained 18.2% in the past three months.

Lowe’s Companies LOW currently has an Earnings ESP of +5.71% and a Zacks Rank of 2. The company is expected to register bottom-line growth when it reports third-quarter fiscal 2021 results.

The Zacks Consensus Estimate for LOW’s fiscal third-quarter earnings moved up 2.2% in the last seven days to $2.32 per share. This suggests a 17.2% jump from the year-ago quarter’s reported number.

However, Lowe’s Companies’ top line is expected to have decreased year over year. The Zacks Consensus Estimate for quarterly revenues is pegged at $21.9 billion, suggesting a decline of 1.6% from the figure reported in the prior-year quarter. LOW’s stock has rallied 23% in the past three months.

Foot Locker FL currently has an Earnings ESP of +11.56% and a Zacks Rank of 3. The company is likely to register growth in the bottom and top lines when it reports third-quarter fiscal 2021.

The Zacks Consensus Estimate for FL’s quarterly earnings moved up by a penny in the last seven days to $1.32 per share. This suggests a 9.1% jump from the year-ago quarter’s reported number.

The Zacks Consensus Estimate for Foot Locker’s quarterly revenues is pegged at $2.12 billion, suggesting a rise of 0.8% from the figure reported in the prior-year quarter. FL stock has gained 5.5% in the past three months.


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