The Gap, Inc. GPS is expected to witness earnings growth when it reports second-quarter fiscal 2023 numbers on Aug 24.
The Zacks Consensus Estimate for the fiscal second-quarter bottom line is pegged at 9 cents per share, suggesting 12.5% growth from the prior-year quarter’s actual. The consensus estimate for the fiscal second-quarter earnings has moved up by a penny in the past seven days. For revenues, the consensus mark is pegged at $3.6 billion, indicating a 6.7% decline from that reported in the year-ago quarter.
In the last reported quarter, Gap’s earnings beat the Zacks Consensus Estimate by 105.9%. The company delivered a significant earnings surprise of 1,007.2%, on average, in the trailing four quarters.
The Gap, Inc. Price and EPS Surprise
The Gap, Inc. price-eps-surprise | The Gap, Inc. Quote
Key Factors to Note
Gap has been aggressively undertaking cost-management actions, which are expected to have improved its performance in the to-be-reported quarter. Some notable efforts were increasing spans of control and decreasing management layers to improve the quality and speed of decision-making, as well as creating a consistent organizational structure across all four brands.
Gap’s second-quarter fiscal 2023 performance is expected to have gained from improved margins, driven by increases in merchandise margins due to lower airfreight and reduced promotions. Lower advertising expenses and technology investments from cost-saving actions also bode well.
On the last reported quarter’searnings call management predicted the second-quarter fiscal 2023 gross margin to expand year over year.
We expect the adjusted gross margin to expand 110 basis points (bps) year over year to 37.1% in the fiscal second quarter, suggesting a decline in the cost of sales due to lower freight expenses. Our model estimates adjusted SG&A expenses (operating expense) to decline 1.6% year over year to $1.3 billion in the fiscal second quarter, in line with the company’s guidance.
Additionally, the company is expected to have benefited from the continued momentum across its Athleta brand. The Athleta brand’s value-driven active and lifestyle categories, increased digital marketing investments, and focus on product strategy have been aiding sales. Increased focus on performance active, as well as active lifestyle products, to capitalize on the evolving shopping trends, bodes well.
Gap has been on track with the execution of its Power Plan 2023, which focuses on opening highly profitable Old Navy and Athleta stores, while closing the underperforming Gap and Banana Republic stores. As part of the plan, the company expects the Old Navy and Athleta brands to contribute about 70% to sales by 2023.
However, Gap is expected to have witnessed continued inflationary pressure and drab demand in the to-be-reported quarter. The inflationary headwinds are expected to have partly offset growth in the gross margin in the fiscal second quarter.
Further, the uncertain macro and consumer environments are expected to have taken a toll on Gap’s top-line performance in the to-be-reported quarter. Rising prices of essential commodities are likely to have hurt lower-income consumers' spending on non-essentials like apparel.
In its last earnings report, management expected second-quarter fiscal 2023 sales to decrease in the mid to high-single-digit range compared to last year's reported figure of $3.86 billion. This view included $60 million in sales for Gap China.
Zacks Model
Our proven model conclusively predicts 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. 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 +64.66%.
Other Stocks Poised to Beat Earnings Estimates
Here are some other companies that have the right combination of elements to post an earnings beat this time around:
Five Below FIVE currently has an Earnings ESP of +1.21% and a Zacks Rank of 2. The company is likely to register top and bottom-line growth when it reports second-quarter fiscal 2023 results. The consensus mark for FIVE’s quarterly revenues is pegged at $760.2 million, which suggests growth of 13.6% from the figure reported in the prior-year quarter.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FIVE’s earnings has been unchanged at 83 cents per share in the past 30 days. The consensus estimate indicates 12.2% growth from the year-ago quarter’s reported figure.
American Eagle Outfitters AEO currently has an Earnings ESP of +8.52% and a Zacks Rank #2. The company is likely to register growth in the bottom line when it reports second-quarter fiscal 2023 numbers. The consensus mark for AEO’s quarterly earnings has moved up 25% to 15 cents per share in the past 30 days. The consensus estimate suggests significant growth of 275% from the year-ago quarter’s reported EPS of 4 cents.
The Zacks Consensus Estimate for American Eagle’s quarterly revenues is pegged at $1.2 billion, which suggests a decline of 0.9% from the figure reported in the prior-year quarter.
Ulta Beauty ULTA currently has an Earnings ESP of +0.20% and a Zacks Rank #3. The company is likely to register growth in the top and bottom lines when it reports second-quarter fiscal 2023 results. The consensus mark for ULTA’s quarterly revenues is pegged at $2.5 billion, which suggests 9% growth from the figure reported in the prior-year quarter.
The consensus mark for ULTA’s quarterly earnings has moved up 0.5% in the past seven days to $5.84 per share. The consensus estimate suggests growth of 2.5% from the year-ago quarter.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2023. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
The Gap, Inc. (GPS) : Free Stock Analysis Report
Ulta Beauty Inc. (ULTA) : Free Stock Analysis Report
Five Below, Inc. (FIVE) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
