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Is Gap (GPS) Poised to Retain Its Earnings Beat Trend in Q1?

·4 min read
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The Gap, Inc. GPS is scheduled to report first-quarter fiscal 2021 numbers on May 27, after market close. The premier international clothing and accessories retailer is likely to have registered top and bottom-line declines in first-quarter fiscal 2021.

The Zacks Consensus Estimate for the fiscal first quarter is pegged at a loss per share of 3 cents, suggesting narrower loss from $2.51 reported in the prior-year quarter. The consensus mark has witnessed a positive revision of 4 cents in the past seven days. For revenues, the consensus mark is pegged at $3.47 billion, indicating growth of 64.9% from the figure reported in the year-ago quarter.

In the last reported quarter, the company reported an earnings surprise of 64.7%. However, the bottom line has lagged the consensus mark by 37.2%, 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 robust online momentum and a solid performance by its powerhouse brand — Old Navy — as well as smaller brands such as Athleta. This led to sequential growth in fourth-quarter fiscal 2020 results. Moreover, the company’s results are likely to reflect gains from improved margins as a result of lower rent and occupancy costs.

Continued growth in the e-commerce business has been contributing significantly to the company’s consolidated sales as well as gains in its Gap, Old Navy and Athleta brands. Positive e-commerce momentum is likely to get reflected in the company’s fiscal first-quarter results.

Moreover, Gap’s Old Navy brand has been witnessing a significant acceleration in the digital business since the start of the pandemic on the back of robust customer demand as well as relevant digital marketing investments. Also, the Athleta brand’s value-driven active and lifestyle categories, increased digital marketing investments, and focus on product strategy have been aiding sales.

On the last reported quarter’s earnings call, management pointed out that it remains optimistic about first-quarter fiscal 2021 results. It had expected investments in digital capabilities, including the loyalty program, robust online momentum and opportunity for market share gains through increased marketing investments to be key growth drivers.

However, soft in-store sales due to the closure of underperforming stores and weak store traffic in a few regions have been hurting sales. Additionally, the Gap and Banana Republic brands continue to be affected by the shift in consumers’ demand to casual fashion. Also, elevated operating costs due to higher marketing expenses across all brands have been denting bottom-line growth and margins. Also, management expects adverse COVID-19 impacts to persist in the first half of 2021. The impacts of the aforementioned headwinds are expected to get reflected in the company’s top and bottom lines in the fiscal first quarter.

Zacks Model

Our proven model conclusively predicts 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. 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 and an Earnings ESP of +63.24%.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies you may want to consider, as our model shows that these also have the right combination of elements to post an earnings beat.

American Eagle Outfitters, Inc. AEO currently has an Earnings ESP of +5.04% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General Corporation DG has an Earnings ESP of +0.94% and a Zacks Rank #3 at present.

Big Lots, Inc. BIG currently has an Earnings ESP of +6.70% and a Zacks Rank #3.

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