Gap's Pre-Q4 Earnings Report: Is Holiday Strength a Buy Signal?

The Gap, Inc. GAP is expected to register top and bottom-line declines when it reports fourth-quarter fiscal 2024 results on March 6, after the closing bell.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.The Zacks Consensus Estimate for fiscal fourth-quarter earnings is pegged at 36 cents per share, suggesting a 26.5% decline from the year-ago quarter’s reported figure. The consensus estimate for fiscal fourth-quarter earnings has been unchanged in the past 30 days. For revenues, the consensus mark is pegged at $4.1 billion, indicating a 5.4% 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 28.6%. GAP has a trailing four-quarter earnings surprise of 101.2%, on average. Given its positive record, the question is whether the stock can maintain its momentum.Earnings Whispers for GAPOur 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 +11.55% 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 Q4 Earnings: Key TrendsGAP’s fourth-quarter fiscal 2024 results are expected to reflect its ability to gain market share and revive its brand 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 fourth-quarter fiscal 2024.Fueled by optimism around its holiday collection, Gap raised its fiscal 2024 outlook. In the fourth quarter of fiscal 2024, the company prioritized enhanced experiences for online and in-store shoppers by refreshing product imagery on its website and remodeling 15% of its stores. Gap was committed to executing with excellence in the fiscal fourth quarter.Strong performances in the fiscal third quarter and the early fourth quarter positioned the company well for the holiday season. This has bolstered its confidence to raise its fiscal 2024 outlook for sales, gross margin and operating income growth. As a result, management forecast sales growth of 1.5-2% on a 52-week basis for fiscal 2024, implying fourth-quarter net sales growth of 1-2%.The company’s fourth-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 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.The Gap, Inc. Price and EPS Surprise  The Gap, Inc. price-eps-surprise | The Gap, Inc. QuoteOn the last reported quarter’s earnings call, Gap anticipated the gross margin to expand at least 220 basis points (bps) year over year for fiscal 2024, including 100 bps of commodity cost gains realized in the first half of the fiscal year. This improvement was driven by commodity cost tailwinds in the first half of fiscal 2024, improved inventory management and relatively neutral ROD. In fourth-quarter fiscal 2024, the gross margin is expected to have been consistent with last year. Operating income for fiscal 2024 is projected to increase year over year in the mid-to-high 60%. This represents substantial progress toward restoring historical operating profit levels.We expect the adjusted gross margin to expand 210 basis points for fiscal 2024. Our model projects adjusted operating income to surge 69.1% year over year in fiscal 2024, with an operating margin of 6.8%. Our model predicts year-over-year adjusted operating expenses to decline 7.1% for the fourth quarter and 1.1% in fiscal 2024.Gap has been navigating an uncertain macroeconomic environment, including inflationary pressures and other challenges, which are expected to have impacted its top-line performance in the to-be-reported quarter. A decline in consumer confidence — a key economic indicator — could have further affected spending. Rising operating and SG&A expenses may put pressure on the company’s profitability for the fiscal fourth quarter.Gap’s Price Performance & Valuation Look PromisingThe company’s shares have exhibited an uptrend in the past year, rising 17.7%, leaving behind its industry peers and the S&P 500. In the past year, the apparel retailer’s shares have jumped 17.7%, outperforming the industry’s growth of 4.9% and the S&P 500’s rally of 17.1%. Meanwhile, the stock has underperformed the sector’s rise of 24% in the same period.The Gap stock has displayed a significant rally compared with Deckers Outdoor DECK, American Eagle Outfitters Inc. AEO and Abercrombie & Fitch’s ANF declines of 9.7%, 45.7% and 25%, respectively, in the past year.GAP's One-Year Price Performance Image Source: Zacks Investment Research At the current price of $22.61, the stock trades at a 26.1% discount to its 52-week high of $30.59. The company trades at a 19.3% premium to its 52-week low mark of $18.95.From a valuation perspective, Gap shares present an attractive opportunity, trading at a discount to industry benchmarks. With a forward 12-month price-to-earnings ratio of 10.45X, below the Retail - Apparel and Shoes industry’s average of 17.94X, the stock offers compelling value for investors seeking exposure to the sector. The stock currently has a Value Score of A, validating its appeal. Image Source: Zacks Investment Research Investment ThesisGap has established a strong presence with its four distinct brands — Gap, Old Navy, Banana Republic and Athleta — each targeting different market segments and contributing to diversified revenue streams. Its recent turnaround highlights the resilience of its business model and effective cost management.The company is positioning itself for sustained growth by curating trend-forward merchandise, enhancing customer engagement through marketing, expanding its digital commerce efforts and optimizing costs. By leveraging its rich retail heritage and iconic brand portfolio, GAP continues to implement key initiatives to drive long-term success in an evolving retail landscape.ConclusionAs Gap prepares to release its fourth-quarter fiscal 2024 earnings results, key strengths, such as brand power, digital transformation, sustainability, global expansion, product innovation, operational efficiency, strong leadership and a customer-focused strategy, signal positive momentum. These initiatives position the company to navigate retail challenges and emerge stronger. With solid fundamentals, Gap remains a strong long-term investment, regardless of short-term stock movements post fiscal fourth-quarter earnings results.GAP’s strong share price performance, coupled with a relatively lower valuation than its peers, presents an appealing opportunity for investors ahead of its fiscal fourth-quarter results. If you already own the Gap stock, hold on to it, as its upcoming earnings report is likely to reinforce its strong trajectory.Just Released: Zacks Top 10 Stocks for 2025Hurry – you can still get in early on our 10 top tickers for 2025. Handpicked by Zacks Director of Research Sheraz Mian, this portfolio has been stunningly and consistently successful. From inception in 2012 through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Sheraz has combed through 4,400 companies covered by the Zacks Rank and handpicked the best 10 to buy and hold in 2025. You can still be among the first to see these just-released stocks with enormous potential. See New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Abercrombie & Fitch Company (ANF): Free Stock Analysis Report American Eagle Outfitters, Inc. (AEO): Free Stock Analysis Report Deckers Outdoor Corporation (DECK): Free Stock Analysis Report The Gap, Inc. (GAP): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks