Will Gap (GPS) Keep the Earnings Streak Alive? - Analyst Blog

We expect apparel retailer giant, The Gap, Inc. GPS to beat expectations when it reports first-quarter fiscal 2014 results scheduled for release on May 22, 2014. In the last concluded quarter, the company outdid the Zacks Consensus Estimate by 3.03%.

Why a Likely Positive Surprise?

Our proven model shows that Gap may beat earnings because it has the right combination of two key components.

Positive Zacks ESP: Gap currently has an Earnings ESP of +1.79%. This is because the Most Accurate estimate stands at 57 cents per share, while the Zacks Consensus Estimate is pegged at 56 cents.

Zacks Rank: Note that stocks with a Zacks Rank #1, 2 and 3 have a higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Gap's Zacks Rank #3 (Hold) and Earnings ESP of +1.79% makes us confident of an earnings beat on May 22.

What is Driving Better-than-Expected Earnings?

Gap is a leading player in the highly fragmented specialty retail sector. The company's flagship brands Gap, Banana Republic, Old Navy, Piperlime and Athleta have global recognition.

With changing customer preferences, the company is constantly improving its online portal to increase sales. As part of these endeavors, in 2013, Gap introduced “find-in-store” and “Reserve-in-Store” in select locations. Moreover, the company is penetrating deeper in to high potential revenue generating markets like China.

We commend Gap's consistent endeavors to keep itself on the growth trajectory, which has produced desirable results amid a soft economic environment. We believe that Gap's current marketing strategy to drive comps will continue to reap positive results going forward. The company has been adopting a more proactive approach to increase traffic.

Gap has a trailing four-quarter average positive surprise of 2.45%.

Other Stocks to Consider

Gap is not the only firm looking up this earnings season. The following companies are also likely to beat earnings in the to-be-reported quarter

The Kroger Co. KR has an Earnings ESP of +0.95% and holds a Zacks Rank #2 (Buy).

Lions Gate Entertainment Corp. LGF has an Earnings ESP of +7.69% and a Zacks Rank #3.

Abercrombie & Fitch Co. ANF has an Earnings ESP of +22.22% and a Zacks Rank #3.