Gap Q2 Earnings Preview: Earnings Estimates, What Analysts Are Saying And Key Items To Watch

Apparel retail company Gap Inc GPS is set to report second-quarter financial results at 1:15 p.m. PT, Thursday, Aug. 24, 2023.

Here’s a look at the earnings estimates, what analysts are saying and some of the key items investors should be watching.

Earnings Estimates: Analysts expect Gap to report second-quarter revenue of $3.57 billion, according to data from Benzinga Pro.

The company reported revenue of $3.86 billion in the second quarter of last year and reported revenue of $3.28 billion in the first quarter of the current fiscal year.

Gap has missed revenue estimates from analysts in the last two straight quarters, before previously beating estimates in the prior four quarters straight.

Analysts expect Gap to report earnings per share of 9 cents in the second quarter. The company reported earnings per share of 8 cents in the second quarter of last year and reported earnings of 1 cent per share in the first quarter of the current fiscal year.

Gap has beaten or matched earnings per share estimates in four of the last six quarters.

In its first-quarter earnings report, Gap previously said it expected second-quarter sales to be down mid to high single digits year-over-year.

Related Link: Gap's Financial Discipline Shines, Analyst Highlights Robust Inventory Control 

What Analysts Are Saying: Analyst updates on Gap have been mixed heading into the second quarter financial results.

Inventories and performances of individual brands are among the key focuses for Dana Telsey of Telsey Advisory Group.

The analyst estimates that Gap will report revenue of 3.61 billion and earnings per share of 5 cents for the second quarter.

“GPS brands have struggled in recent quarters, with persisting declines across all four brands,” Telsey said.

The analyst, who has a Market Perform rating and $11 price target, said signs have been encouraging around inventory control and cost management in recent quarters.

“With macro and inflationary pressures continuing to impact consumer spending patterns and visibility to improved sales and profitability challenging, we maintain our Market Perform rating.”

Strong gross margins could lead to an earnings beat, according to Citigroup analyst Paul Lejuez.

“We anticipate a sequential slowdown at Old Nacy, however, we believe the market is bracing for an even weaker Old Navy comp,” Lejuez said.

The analyst thinks higher gross margins will come from lower markdowns in the second quarter with improvements in inventory shown in recent quarters.

“We believe the risk/reward is favorable into 2Q EPS.”

Lejuez has a Neutral rating and raised the price target from $9 to $11 earlier this month.

According to Benzinga’s analyst ratings, two other analysts also updated outlooks on Gap in the past two months.

Barclays analyst Adrienne Yih upgraded shares of Gap from Equal-weight to Overweight and raised the price target from $9 to $13.

Jefferies analyst Randal Konik has a Hold rating and a price target of $9.

Key Items to Watch: Investors will be watching the performance of the company’s individual brands and items flagged by analysts above like inventory and cost controls.

Given concern for inflation and the overall macro environment, investors will also be watching to see how customers are shopping, with regards to in-store versus online sales, the average size of order and more. The company’s Old Navy brand could be a good indicator of spending from lower-income families.

Another key item analysts and investors will be watching is commentary on the company’s new CEO. In July, Gap announced that Mattel Inc MAT President and Chief Operating Officer Richard Dickson will be the company’s new CEO.

Dickson spent many years with Mattel and was instrumental in the company’s revitalization of the Barbie brand, including the record-breaking movie adaptation.

The new Gap CEO was scheduled to take on the new role starting on Aug. 22. While he has spent minimal time in the new role, he has been serving on the company’s Board of Directors, giving him an inside look at efforts to turn around the struggling brand.

“Gap Inc. is a portfolio of iconic brands, known for having defined American style with bold thinking and making quality fashion accessible to millions. But it’s the work ahead that excites me most — the chance to work hand-in-hand with the teams to evolve Gap Inc. for a new era,” Dickson said at the time of the announcement.

Investors will be looking forward to hearing more about future plans for the company and brands under Dickson’s leadership.

“Engaging in this new generation is the game Mattel is playing,” Dickson said.

GPS Price Action: Gap shares trade at $9.65 versus a 52-week trading range of $7.22 to $15.49. Shares of Gap are down 15% year-to-date in 2023 and have fallen 70% over the last five years.

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Photo: Courtesy Gap