Gap (GPS) Q2 Earnings: Omnichannel Efforts To Drive A Beat?

The Gap, Inc. (NYSE:GPS) is slated to release second-quarter fiscal 2017 results on Aug 17. The question lingering in investors’ minds is whether this international specialty retailer will be able to deliver a positive earnings surprise in the quarter to be reported. The company has outperformed the Zacks Consensus Estimate by an average of 6.5% in the trailing four quarters. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at 52 cents compared with 60 cents delivered in the year-ago quarter. However, we noted that our earnings estimate has remained stable over the last 30 days. Analysts polled by Zacks expect revenues of $3.8 billion, down 2.2% from the year-ago quarter.

Gap forms part of the Retail- Wholesale sector. Per the latest Earnings Trends, the sector’s earnings are expected to dip 0.9% year over year while revenues are projected to grow 4.1%.

What the Zacks Model Unveils?

Well, our proven model shows that Gap may beat earnings estimates because it has the right combination of the two key components.

Zacks ESP: Gap currently has an Earnings ESP of +3.85%. This is because the Most Accurate estimate is 54 cents, while the Zacks Consensus Estimate is pegged lower at 52 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Gap currently carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of Gap’s Zacks Rank #2 and a positive ESP make us reasonably confident of a positive earnings beat.

Factors Driving the Better-than-Expected Earnings

Gap has been gaining from its turnaround efforts. The company is strongly focused on its strategic plans to keep track of the accelerated pace of change in the apparel industry. Further, Gap remains on track to speed up its transformation plan by bringing meaningful changes to its product portfolio and operating capabilities, worldwide. Other than this, the company is keen on streamlining its operating model by creating a more proficient global brand structure, and cutting costs. Moreover, Gap has been focused on augmenting omni-channel and digital operations, as evident from its various endeavors like “find-in-store” and “Reserve-in-Store” among others. These growth drivers, along with strength at its Old Navy brand helped the company to mark its fourth consecutive sales beat, in the previous quarter. Thus, we believe that all these initiatives are likely to help Gap deliver another impressive quarter.

Though currency has long been a deterrent, all aforementioned catalysts have kept this California based company going even amid a challenging retail landscape. While Gap’s shares rose 5.9% so far this year, it fared much better than the industry’s 23.8% slump.



Stocks with Favorable Combination

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:

Big Lots, Inc. (NYSE:BIG) has an Earnings ESP of +6.56% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores, Inc. (NYSE:BURL) has an Earnings ESP of +6.00% and a Zacks Rank #2.

DSW Inc. (NYSE:DSW) has an Earnings ESP of +3.45% and a Zacks Rank #3.

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