The Gap, Inc. (GPS), apparel and shoe retailer is slated to report its second-quarter fiscal 2014 earnings on Aug 21, 2014. In the previous quarter, the company delivered a positive earnings surprise of 1.75%. Let’s see how things are shaping up for this announcement.
Factors Influencing this Quarter
Gap’s first quarter was battered by a severe winter, higher cost of goods sold and occupancy expenses along with unfavorable foreign currency translations, which led the company’s earnings to fall drastically from the year-ago comparable period. However, earnings beat estimates and the top line also improved, backed by the company’s strategic initiatives, including the enhancement of omni-channel capabilities, global growth and effective inventory management. With these initiatives underway, Gap is likely to fight these headwinds in the future as well.
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 (Expected Surprise Prediction) and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here as you will see below.
Zero Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 69 cents.
Zacks Rank: Gap carries a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat:
Abercrombie & Fitch Co. (ANF), Earnings ESP of +10.00% and a Zacks Rank #2 (Buy).
Dollar Tree, Inc. (DLTR), Earnings ESP of +7.69% and a Zacks Rank #3.
Costco Wholesale Corporation (COST), Earnings ESP of +1.33% and a Zacks Rank #3.
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