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Will Gap (GPS) Disappoint Investors this Earnings Season? - Analyst Blog

Zacks Equity Research
Updated

The Gap, Inc. (GPS) is slated to report fourth-quarter fiscal 2014 results on Feb 26. In the last quarter, the company had delivered a negative earnings surprise of 6.3%. Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

Gap recently released impressive key sales numbers for the fourth quarter ended Jan 31, 2015. However, the data for January was slightly disappointing. The company registered an increase of 3% in net sales and witnessed comparable-store sales (comps) growth of 2% during the quarter. However, for the month of January, net sales fell 1.2%, while comps declined 3%.

Nevertheless, management raised its fiscal 2014 earnings projection on the back of encouraging fourth-quarter sales results and on the anticipation of lower tax rate. The company now envisions earnings in the range of $2.86–$2.87 per share, compared with $2.73–$2.78 forecasted earlier. For the fourth quarter, the company anticipates earnings between 73 cents and 74 cents a share.

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Despite these favorable numbers, we remain cautious due to the company’s January comps, rising raw material prices and depreciating foreign currencies that may weigh upon the quarter’s performance.

Earnings Whispers

Our proven model does not conclusively show that Gap is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Gap currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 74 cents.

Zacks Rank: Gap’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

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 this quarter:

CST Brands, Inc. (CST) has an Earnings ESP of +11.11% and a Zacks Rank #1 (Strong Buy).

The Kroger Co. (KR) has an Earnings ESP of +6.74% and a Zacks Rank #2 (Buy).

Kohl's Corp. (KSS) has an Earnings ESP of +0.56% and a Zacks Rank #2.


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GAP INC (GPS): Free Stock Analysis Report
 
KOHLS CORP (KSS): Free Stock Analysis Report
 
CST BRANDS INC (CST): Free Stock Analysis Report
 
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Zacks Investment Research