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Gap Inc. (GAP - Free Report) is back and is bullish on the 2024 holiday season. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by the double digits this year.
Gap is the largest specialty apparel company in America. It operates brands such as Old Navy, Gap, Banana Republic and Athleta. Clothing, accessories, and lifestyle products are available through company-owned stores, franchise stores and e-commerce sites around the globe.
Another Earnings Beat By Gap in the Third Quarter
On Nov 21, 2024, Gap reported its third quarter fiscal 2024 results and beat on the Zacks Consensus Estimate by $0.16. Earnings were $0.72 versus the consensus of $0.56.
It was the seventh consecutive earnings surprise.
Net sales were up 2% to $3.8 billion. Online sales rose 7% and now make up 40% of total sales.
But more importantly, the comparable sales, which are the key metric in retail, were up 1% year-over year after falling 2% in the same quarter last year.
It saw improvement in 3 brands: Gap, Banana Republic and Athleta.
Gap comparables were up 3%, after declining 1% in 2023, on a strong product mix.
Banana Republic was down, but only 1% after it was down 8% last year. The quarter was boosted by the men’s business but it remains focused on turning around this brand. It is trying to move Banana Republic into a more upmarket, category.
Athleta, its athleisure brand, also turned it around with comparables up 5% after plunging 19% last year. Gap said new product and marketing were resonating with customers.
Old Navy had a flat comparable after comps rose 1% last year. But it faced tougher comparables from last year and had weather-related challenges.
Other fundamentals looked solid in the third quarter. Gross margins rose 140 basis points to 42.7% and inventory declined 2% to $2.3 billion.
Gap Raises Full Year Guidance
Gap was bullish about the holiday season and the fourth quarter. It raised its full year sales, operating income growth and gross margin guidance.
The analysts are bullish too. 6 earnings estimates were revised higher in the last week for both fiscal 2024 and fiscal 2025.
The Zacks Consensus Estimate for fiscal 2024 jumped to $2.00 from $1.87. That’s earnings growth of 39.9% as it made only $1.43 last year.
The fiscal 2025 Zacks Consensus Estimate also moved higher in the last week, to $2.11. That’s further earnings growth of 5.7% but the analysts will be conservative about 2025 as it is looking for the retailers to get through the holiday season first.
Here’s what it looks like on the price and consensus chart.
Image Source: Zacks Investment Research
Is Gap a Value?
While Gap shares are up 16.3% year-to-date, it is not yet back to its pandemic highs.
Image Source: Zacks Investment Research
It’s cheap, on a price-to-earnings (P/E) basis. It has a forward P/E of just 12.1.
Because the earnings are on the rise, it has an attractive PEG ratio of just 1.09. A PEG ratio under 1.0 usually indicates that a company has both growth and value.
Gap is also shareholder friendly and pays a dividend of $0.60 a share. It is currently yielding 2.5%.
For investors looking for a turnaround play in specialty retail, Gap should be on your short list.
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Bull of the Day: Gap Inc. (GAP)
Gap Inc. (GAP - Free Report) is back and is bullish on the 2024 holiday season. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by the double digits this year.
Gap is the largest specialty apparel company in America. It operates brands such as Old Navy, Gap, Banana Republic and Athleta. Clothing, accessories, and lifestyle products are available through company-owned stores, franchise stores and e-commerce sites around the globe.
Another Earnings Beat By Gap in the Third Quarter
On Nov 21, 2024, Gap reported its third quarter fiscal 2024 results and beat on the Zacks Consensus Estimate by $0.16. Earnings were $0.72 versus the consensus of $0.56.
It was the seventh consecutive earnings surprise.
Net sales were up 2% to $3.8 billion. Online sales rose 7% and now make up 40% of total sales.
But more importantly, the comparable sales, which are the key metric in retail, were up 1% year-over year after falling 2% in the same quarter last year.
It saw improvement in 3 brands: Gap, Banana Republic and Athleta.
Gap comparables were up 3%, after declining 1% in 2023, on a strong product mix.
Banana Republic was down, but only 1% after it was down 8% last year. The quarter was boosted by the men’s business but it remains focused on turning around this brand. It is trying to move Banana Republic into a more upmarket, category.
Athleta, its athleisure brand, also turned it around with comparables up 5% after plunging 19% last year. Gap said new product and marketing were resonating with customers.
Old Navy had a flat comparable after comps rose 1% last year. But it faced tougher comparables from last year and had weather-related challenges.
Other fundamentals looked solid in the third quarter. Gross margins rose 140 basis points to 42.7% and inventory declined 2% to $2.3 billion.
Gap Raises Full Year Guidance
Gap was bullish about the holiday season and the fourth quarter. It raised its full year sales, operating income growth and gross margin guidance.
The analysts are bullish too. 6 earnings estimates were revised higher in the last week for both fiscal 2024 and fiscal 2025.
The Zacks Consensus Estimate for fiscal 2024 jumped to $2.00 from $1.87. That’s earnings growth of 39.9% as it made only $1.43 last year.
The fiscal 2025 Zacks Consensus Estimate also moved higher in the last week, to $2.11. That’s further earnings growth of 5.7% but the analysts will be conservative about 2025 as it is looking for the retailers to get through the holiday season first.
Here’s what it looks like on the price and consensus chart.
Image Source: Zacks Investment Research
Is Gap a Value?
While Gap shares are up 16.3% year-to-date, it is not yet back to its pandemic highs.
Image Source: Zacks Investment Research
It’s cheap, on a price-to-earnings (P/E) basis. It has a forward P/E of just 12.1.
Because the earnings are on the rise, it has an attractive PEG ratio of just 1.09. A PEG ratio under 1.0 usually indicates that a company has both growth and value.
Gap is also shareholder friendly and pays a dividend of $0.60 a share. It is currently yielding 2.5%.
For investors looking for a turnaround play in specialty retail, Gap should be on your short list.