Gap Gears Up For Q4 Earnings: What Surprise Awaits Investors?

The Gap, Inc. GAP is expected to register top-line growth when it reports fourth-quarter fiscal 2025 results on March 5, after the closing bell. For revenues, the Zacks Consensus Estimate is pegged at $4.2 billion, indicating a 1.3% rise from the year-ago quarter’s figure.

The consensus estimate for the bottom line is pegged at 45 cents per share, indicating a 16.7% decline from the year-ago quarter’s figure. The consensus estimate for fiscal fourth-quarter earnings has been stable in the past 30 days. 

The San Francisco, CA-based company has been reporting steady earnings outcomes, as evident from its bottom and top-line surprise trends in the trailing four quarters. GAP has a trailing four-quarter earnings surprise of 19.1%, on average. In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 6.9%.

Factors Likely to Impact Gap’s Q4 Results

Gap’s quarterly results are expected to benefit from its ability to gain market share and revive its positioning. The company remains 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 2025.

The company’s results are expected to benefit from its strong execution, brand momentum and financial discipline, positioning it for sustained growth. As a longstanding force in the apparel industry, the company maintains a significant market presence through its diverse brand portfolio, which includes Old Navy, Banana Republic and Athleta. We expect sales to rise 1.5%, 1.8%, 1.1% and 2.9%, respectively, for Gap, Old Navy, Banana Republic and Athleta brands for the fiscal fourth quarter.

The company’s reinvigoration playbook continued to drive brand relevance and consumer engagement. Old Navy, Gap and Banana Republic are benefiting from clearer merchandising, trend-right assortments and a more efficient media mix. Old Navy’s category leadership in denim and active, Gap’s viral cultural positioning through creator-driven content and Banana Republic’s improved product aesthetic and customer acquisition are expected to have supported higher traffic, stronger AUR and improved full-price sell-through in the to-be-reported quarter.

However, a major factor shaping the fiscal fourth-quarter earnings is the significant tariff impact and inflation. Although the company has been working aggressively on mitigation efforts, this will affect its results in the near term. On its last earnings call, management had expected deleverage of roughly 50 basis points (bps) year over year, thanks to the expected annual net tariff impact of approximately 100-110 bps.

We expect the adjusted gross margin to decline 60 bps and adjusted operating expenses, as a percentage of sales, to increase 40 bps year over year for the fiscal fourth quarter. Our model indicates a decrease of 100 bps in the adjusted operating margin to 5.2% in the to-be-reported quarter.

What the Zacks Model Unveils for GAP?

Our proven model does not conclusively predict 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 chances of an earnings beat. But that’s not the case here. You can uncover the best stocks before they're reported with our Earnings ESP Filter.

Gap currently has an Earnings ESP of 0.00% and a Zacks Rank of 3.

Valuation Picture of GAP Stock

Going by the price/earnings ratio, the stock is currently trading at 12.07 on a forward 12-month basis, lower than 18.67 of the industry. Also, it is trading lower than its high of 13.53.

The recent market movements show that Gap’s shares have increased 3.3% in the past three months versus the industry's 7.9% growth.

Stocks Poised to Beat Earnings Estimates

Here are some companies, which according to our model, have the right combination of elements to post an earnings beat:

Ross Stores, Inc. ROST currently has an Earnings ESP of +2.28% and a Zacks Rank of 2. The company is likely to register growth in the top and bottom lines when it reports fourth-quarter fiscal 2025 results. You can see the complete list of today’s Zacks #1 Rank stocks here. 

The consensus mark for ROST’s quarterly revenues is pegged at $6.4 billion, which indicates a 8.2% rise from the figure reported in the prior-year quarter. The consensus mark for ROST’s quarterly earnings has moved up a penny in the past 30 days to $1.88 per share. The consensus estimate indicates an increase of 5% from the year-ago quarter’s actual. ROST has an average trailing four-quarter earnings surprise of 6.7%.

Dollar General Corporation DG currently has an Earnings ESP of +5.37% and a Zacks Rank of 3. The company is likely to register growth in the top line when it reports fourth-quarter fiscal 2025 results. 

The consensus mark for DG’s quarterly revenues is pegged at $10.8 billion, which indicates a 4.6% rise from the figure reported in the prior-year quarter. The consensus mark for Dollar General’s quarterly earnings has moved up a couple of cents in the past 30 days to $1.61 per share. The consensus estimate indicates a drop of 4.2% from the year-ago quarter’s actual. DG has an average trailing four-quarter earnings surprise of 22.9%.

lululemon athletica LULU currently has an Earnings ESP of +0.89% and a Zacks Rank of 3. 
LULU is likely to register top-line decline when it reports fourth-quarter fiscal 2025 results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $3.6 billion, which indicates a 0.3% drop from the prior-year quarter.

The consensus estimate for earnings has moved down a couple of cents in the past 30 days to $4.74 per share, which implies a 22.8% decrease from the year-ago quarter's actual. LULU has an average trailing four-quarter earnings surprise of 7.8%.

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This article originally published on Zacks Investment Research (zacks.com).

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