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The Zacks Consensus Estimate for the fiscal second-quarter bottom line is pegged at 39 cents per share, suggesting 14.7% growth from the year-ago quarter’s reported figure. The consensus estimate for fiscal second-quarter earnings has moved down 7.1% in the past seven days. For revenues, the consensus mark is pegged at $3.6 billion, indicating a 1.9% rise from the year-ago quarter’s reported figure.
The San Francisco, CA-based company has been reporting steady earnings outcomes, as evident from its positive top and bottom-line surprise trends in the trailing four quarters. In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 192.9%. GAP has a trailing four-quarter earnings surprise of 202.7%, on average. Given its positive record, the question arises: can GAP maintain the momentum?
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 before they are reported with our Earnings ESP Filter.
Gap’s second-quarter fiscal 2024 results are expected to reflect its ability to gain market share and revive its brand’s position. Management has been committed to creating a trend-right merchandise assortment, deepening relations with customers via marketing, enhancing the digital commerce agenda and efficiently controlling expenses. Gains from these actions are expected to have bolstered the company’s performance in second-quarter fiscal 2024.
Old Navy’s emphasis on value-driven fashion and Athleta’s strong position in the thriving activewear market present significant growth opportunities. The company’s management has been on track to turn around the performance of its namesake brand, bringing back its heritage of offering ‘every generation’ merchandise. Gap is also making strides in repositioning Banana Republic to excel in the premium lifestyle segment. This is likely to have boosted sales across the company’s brands.
Our model predicts fiscal second-quarter sales to increase 4% at Gap Global, 2% at Old Navy Global, and 1.1% each at Banana Republic Global and Athleta Global.
Moreover, the company’s second-quarter fiscal 2024 performance is expected to have gained from improved margins, driven by lower airfreight and increased promotional activity. Lower advertising expenses and technology investments from cost-saving actions also bode well. The company has been aggressively undertaking cost-management actions, which are expected to have improved its performance in the to-be-reported quarter.
On the last reported quarter’s earnings call, management expected gross margin expansion of at least 300 basis points in the second quarter of fiscal 2024. This is likely to have been backed by merchandise margin expansion and commodity cost tailwinds. Notably, the company has been taking a prudent approach toward the promotional environment.
We expect an adjusted gross margin expansion of 300 basis points for the fiscal second quarter, backed by gains from higher merchandise margins, lower commodity costs and better promotional activity.
Uncertain macro and consumer environments are expected to have taken a toll on Gap’s top-line performance in the to-be-reported quarter. Higher operating expenses are likely to have hurt the company's profitability.
On the last reported quarter’s earnings call, management expected operating expenses to rise 5% for the second quarter of fiscal 2024 from the adjusted SG&A reported last year, owing to the timing shifts in incentive accruals and advertising expenses. Our model predicts year-over-year adjusted operating expense growth of 4.9% for the fiscal second quarter.
The company’s shares have exhibited an uptrend in the past month, rising 4.7%, leaving behind its industry peers and the Zacks Consumer Staples sector. In the past year, the apparel retailer’s shares have surged 109.8%, outperforming the industry’s growth of 24.8% and the sector’s rise of 20%.
The Gap stock has displayed a significant rally compared with Deckers Outdoor (DECK - Free Report) , American Eagle Outfitters Inc. (AEO - Free Report) and Nordstrom’s (JWN - Free Report) growth of 80.5%, 37% and 34.9%, respectively, in the past year.
Image Source: Zacks Investment Research
At the current price of $23.28, the stock trades at a 31.4% discount to its 52-week high of $30.59 reached on Jun 3, 2024.
From a valuation perspective, Gap shares present an attractive opportunity, trading at a discount than historical and industry benchmarks. With a forward 12-month price-to-earnings ratio of 12.65X, below the Retail - Apparel & Shoes industry’s average of 16.92X, the stock offers compelling value for investors seeking exposure to the sector. Additionally, the stock currently has a Value Score of A, further validating its appeal.
Image Source: Zacks Investment Research
Investment Thesis
Gap has carved out a niche with its four distinct brands — Gap, Old Navy, Banana Republic and Athleta — each catering to different market segments and providing diverse revenue streams. Its recent turnaround underscores the resilience of its business model and effective cost-management strategies.
The company is poised to strategically position itself for sustained growth, with a focus on curating trend-right merchandise, strengthening customer relationships through marketing, advancing its digital commerce agenda and efficiently managing costs. By leveraging its rich retail heritage and a portfolio of iconic brands, it has undertaken multiple initiatives to ensure long-term success in a rapidly evolving retail landscape.
Conclusion
As Gap gets ready to release its second-quarter fiscal 2024 earnings, positive factors like brand strength, digital transformation, sustainability, global expansion, product innovation, operational efficiency, strong leadership and a consumer-centric approach are promising indicators. The company’s ongoing initiatives position it to effectively navigate the challenges of the modern retail landscape and emerge even stronger. Given its strong fundamentals, Gap is a solid long-term buy, regardless of what course its stock takes after the second-quarter fiscal 2024 earnings results.
Gap’s robust share price performance, combined with a relatively lower valuation than peers, offers an attractive opportunity for investors looking to invest in this profitable apparel retailer before its second-quarter fiscal 2024 results. If you already hold the GAP stock in your portfolio, sit tight, as the upcoming earnings report is likely to confirm the company's strong performance.
Image: Bigstock
Is it Worth Adding the GAP Stock to Your Portfolio Pre-Q2 Earnings?
The Gap, Inc. (GAP - Free Report) is expected to register top and bottom-line growth when it reports second-quarter fiscal 2024 results on Aug 29, after the closing bell.
The Zacks Consensus Estimate for the fiscal second-quarter bottom line is pegged at 39 cents per share, suggesting 14.7% growth from the year-ago quarter’s reported figure. The consensus estimate for fiscal second-quarter earnings has moved down 7.1% in the past seven days. For revenues, the consensus mark is pegged at $3.6 billion, indicating a 1.9% rise from the year-ago quarter’s reported figure.
The San Francisco, CA-based company has been reporting steady earnings outcomes, as evident from its positive top and bottom-line surprise trends in the trailing four quarters. In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 192.9%. GAP has a trailing four-quarter earnings surprise of 202.7%, on average. Given its positive record, the question arises: can GAP maintain the momentum?
The Gap, Inc. Price and EPS Surprise
The Gap, Inc. price-eps-surprise | The Gap, Inc. Quote
Earnings Whispers
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 before they are reported with our Earnings ESP Filter.
Gap currently has an Earnings ESP of +3.47% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
What to Expect from GAP’s Q2 Earnings: Key Trends
Gap’s second-quarter fiscal 2024 results are expected to reflect its ability to gain market share and revive its brand’s position. Management has been committed to creating a trend-right merchandise assortment, deepening relations with customers via marketing, enhancing the digital commerce agenda and efficiently controlling expenses. Gains from these actions are expected to have bolstered the company’s performance in second-quarter fiscal 2024.
Old Navy’s emphasis on value-driven fashion and Athleta’s strong position in the thriving activewear market present significant growth opportunities. The company’s management has been on track to turn around the performance of its namesake brand, bringing back its heritage of offering ‘every generation’ merchandise. Gap is also making strides in repositioning Banana Republic to excel in the premium lifestyle segment. This is likely to have boosted sales across the company’s brands.
Our model predicts fiscal second-quarter sales to increase 4% at Gap Global, 2% at Old Navy Global, and 1.1% each at Banana Republic Global and Athleta Global.
Moreover, the company’s second-quarter fiscal 2024 performance is expected to have gained from improved margins, driven by lower airfreight and increased promotional activity. Lower advertising expenses and technology investments from cost-saving actions also bode well. The company has been aggressively undertaking cost-management actions, which are expected to have improved its performance in the to-be-reported quarter.
On the last reported quarter’s earnings call, management expected gross margin expansion of at least 300 basis points in the second quarter of fiscal 2024. This is likely to have been backed by merchandise margin expansion and commodity cost tailwinds. Notably, the company has been taking a prudent approach toward the promotional environment.
We expect an adjusted gross margin expansion of 300 basis points for the fiscal second quarter, backed by gains from higher merchandise margins, lower commodity costs and better promotional activity.
Uncertain macro and consumer environments are expected to have taken a toll on Gap’s top-line performance in the to-be-reported quarter. Higher operating expenses are likely to have hurt the company's profitability.
On the last reported quarter’s earnings call, management expected operating expenses to rise 5% for the second quarter of fiscal 2024 from the adjusted SG&A reported last year, owing to the timing shifts in incentive accruals and advertising expenses. Our model predicts year-over-year adjusted operating expense growth of 4.9% for the fiscal second quarter.
Gap’s Price Performance & Valuation Look Promising
The company’s shares have exhibited an uptrend in the past month, rising 4.7%, leaving behind its industry peers and the Zacks Consumer Staples sector. In the past year, the apparel retailer’s shares have surged 109.8%, outperforming the industry’s growth of 24.8% and the sector’s rise of 20%.
The Gap stock has displayed a significant rally compared with Deckers Outdoor (DECK - Free Report) , American Eagle Outfitters Inc. (AEO - Free Report) and Nordstrom’s (JWN - Free Report) growth of 80.5%, 37% and 34.9%, respectively, in the past year.
Image Source: Zacks Investment Research
At the current price of $23.28, the stock trades at a 31.4% discount to its 52-week high of $30.59 reached on Jun 3, 2024.
From a valuation perspective, Gap shares present an attractive opportunity, trading at a discount than historical and industry benchmarks. With a forward 12-month price-to-earnings ratio of 12.65X, below the Retail - Apparel & Shoes industry’s average of 16.92X, the stock offers compelling value for investors seeking exposure to the sector. Additionally, the stock currently has a Value Score of A, further validating its appeal.
Image Source: Zacks Investment Research
Investment Thesis
Gap has carved out a niche with its four distinct brands — Gap, Old Navy, Banana Republic and Athleta — each catering to different market segments and providing diverse revenue streams. Its recent turnaround underscores the resilience of its business model and effective cost-management strategies.
The company is poised to strategically position itself for sustained growth, with a focus on curating trend-right merchandise, strengthening customer relationships through marketing, advancing its digital commerce agenda and efficiently managing costs. By leveraging its rich retail heritage and a portfolio of iconic brands, it has undertaken multiple initiatives to ensure long-term success in a rapidly evolving retail landscape.
Conclusion
As Gap gets ready to release its second-quarter fiscal 2024 earnings, positive factors like brand strength, digital transformation, sustainability, global expansion, product innovation, operational efficiency, strong leadership and a consumer-centric approach are promising indicators. The company’s ongoing initiatives position it to effectively navigate the challenges of the modern retail landscape and emerge even stronger. Given its strong fundamentals, Gap is a solid long-term buy, regardless of what course its stock takes after the second-quarter fiscal 2024 earnings results.
Gap’s robust share price performance, combined with a relatively lower valuation than peers, offers an attractive opportunity for investors looking to invest in this profitable apparel retailer before its second-quarter fiscal 2024 results. If you already hold the GAP stock in your portfolio, sit tight, as the upcoming earnings report is likely to confirm the company's strong performance.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.