Gap Inc. (GPS), a premier international specialty retailer, is scheduled to report its fiscal 2009 fourth-quarter results on Feb 25, 2010. The current Zacks Consensus Estimate for the quarter is $0.44 per share. Estimates appear to be trending up, with year-over-year growth of 28.5%. Of the 27 analysts having a fourth-quarter earnings estimate, seven have raised their estimates in the last 30 days, while only 1 has reduced.
The Zacks Consensus Estimate for the current fiscal year is $1.51 per share, up 12.6% from fiscal 2008. Fiscal estimates appear to be trending up as well. Of the 28 analysts covering the stock, seven have increased estimates in the last 30 days while only 2 have moved in the opposite direction. With respect to earnings surprises, the stock has moved up moderately over the last four quarters in the range of 2%-6%. The average remained positive at 3.8%. This implies that Gap has surged ahead of the Zacks Consensus Estimate by 3.8% on an average over the last four quarters.
The upswing in the earnings estimates primarily stems from the robust sales in Dec 2009. Net sales for the five-week period ended Jan 2, 2010 were $2.02 billion, compared with net sales of $1.93 billion for the five-week period ended Jan 3, 2009 – an increase of approximately 4.7%. Same-store sales during the month increased 2%, compared with a 14% decrease in the year-earlier period.
Same-store sales improved across all the business segments of the company. The Gap North America division reported 1% same-store sales growth, compared to negative 12% in the previous year. The Banana Republic North America segment reported negative 3% same-store sales growth, compared to negative 15% in the prior year. The Old Navy North America segment recorded a 7% growth in same-store sales versus negative 16% in the preceding year. The International segment reported same-store sales growth of negative 1% versus negative 5% in the prior year.
Gap also reported healthy fiscal third-quarter results, despite challenging market conditions. The company announced net income of $307 million or $0.44 per share during the quarter, compared to $246 million or $0.35 per share in the year-earlier quarter. The robust earnings were primarily driven by strong sales at its low-price Old Navy segment and the highest third-quarter operating margins in a decade. Net sales during the quarter were $3.59 billion compared to $3.56 billion in the year-ago quarter, largely due to a 10% increase in comparable sales across 1,060 Old Navy stores that account for about 40% of the total sales.
The Old Navy chain benefited from the increasing preference among U.S. shoppers for lower-price and discount stores due to the challenging macroeconomic environment. Gross margins increased 380 basis points year-over-year to 42.5%. Operating margins during the quarter increased to 13.9% from 11.1% in the year-ago quarter due to effective cost-control measures and prudent inventory management policies.
All these factors, along with the gradually improving fundamentals, have helped the stock retain its current “Outperform” rating. This implies that Gap is anticipated to perform well above the market.
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