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Gap (GPS) Q1 Earnings Likely to Disappoint: Stock at Risk?

The Gap, Inc. GPS is slated to release first-quarter fiscal 2016 results on May 19. Last quarter, the company’s earnings met the Zacks Consensus Estimate. In fact, the company has reported in-line earnings for four straight quarters now. Let’s see how things are shaping up for this announcement.



Factors Influencing this Quarter

Gap posted dismal comparable store sales (comps) and sales results for April and first-quarter fiscal 2016. This marked the company’s 13th consecutive month of negative comps. Gap has been struggling with its top line on account of slow consumer traffic due to continuous fashion misses and intense competition from rivals. Moreover, the company stated that the gross margin remained pressurized in the first quarter owing to greater-than-expected inventories, which had to be cleared at discounted rates. Consequently, the company envisions first-quarter earnings to range from 31–32 cents per share.

Earnings Whispers

Our proven model does not conclusively show that Gap is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Gap is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 33 cents.

Zacks Rank: Gap currently carries a Zacks Rank #5 (Strong Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Best Buy Co., Inc. BBY, which is scheduled to release earnings on May 24, 2016, currently carries a Zacks Rank #2 (Buy) and an Earnings ESP of + 2.94%.

DSW Inc. DSW, slated to release earnings on May 24, 2016, currently carries a Zacks Rank #3 (Hold) and an Earnings ESP of + 2.17%.

PVH Corp. PVH, slated to release earnings on May 25, 2016, currently carries a Zacks Rank #3 and an Earnings ESP of + 1.40%.

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GAP INC (GPS): Free Stock Analysis Report
 
DSW INC CL-A (DSW): Free Stock Analysis Report
 
BEST BUY (BBY): Free Stock Analysis Report
 
PVH CORP (PVH): Free Stock Analysis Report
 
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