Will Gap Stock Trade Lower Results After Q3?

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stock from Gap Inc. (NYSE: GPS), a specialty retailer that sells casual wear, accessories and personal care products for men, women and children under the Gap
GPS
, the Old Navy and Banana Republic brands are expected to report third quarter results on Thursday, November 17. We expect Gap’s shares to likely trade lower as sales and earnings beat expectations. Gap’s inventories rose 23% in 2021, then rose further at 34% and 37% year-over-year (yoy) in the first and second quarters of 2022, respectively. writing off inventory, mainly at Old Navy. It is likely that Gap will have to resort to margin crushing price cuts to reduce its inventories. As of the first half of 2022, Gap’s gross and operating margins have already declined significantly year over year, and additional markdowns will only exacerbate that trend. We expect inflationary headwinds, slow sales of Gap products in China and sizing and assortment issues to continue to negatively impact the company’s third quarter results. The only bright spot so far has been comp growth in the Banana Republic segment, which benefited from the brand’s relaunch last year. Otherwise, the growth of Gap’s compositions slowed abruptly at the Old Navy, Gap, and Athleta banners. GAP has retracted its full-year forecast and continues to search for a permanent CEO as inventories rise and margins shrink.

Our forecast indicates that Gap’s valuation is $10 per share, which is 19% lower than the current market price. Check out our interactive dashboard analysis on Gap’s Earnings Preview: what to expect in Q3? for more details.

(1) Revenue is expected to be slightly below consensus estimates

Trefis estimates Gap’s revenue for FQ3 2022 at $3.7 billion, slightly below market expectations. In the second quarter, Gap’s revenue fell 8% year-over-year to $3.86 billion on a 10% decline in comparable store sales. The company’s 8% growth at Banana Republic failed to offset a 15% decline at Old Navy, a 7% decline at Gap, and an 8% slump at Athleta. We expect full year 2022 revenues to decline.

(2) EPS is likely to miss consensus estimates

Gap’s FQ3 2022 earnings per share is expected to come in at a loss of 6 cents per Trefis analysis, missing the consensus estimate. Adjusted net income was down 89% yoy to $30 million, or $0.08 per share in the second quarter.

(3) Estimated share price lower than the current market price

Based on our Gap’s Valuation, with an adjusted EPS estimate of $1.36 and a P/E multiple of 7.0x in fiscal 2022, this translates into a price of $10, which is 19% lower than the current market price.

It’s helpful to see how his peers are doing. GPS Peers shows how Gap’s share compares to peers on metrics that matter. Other useful comparisons for companies in different sectors can be found at Peer Comparisons.

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