Q1 Preview: Analysts Wait on the Sidelines Amid Lofty Expectations for Gap (GPS)

May 17, 2012 3:29 PM EDT
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Price: $23.94 -1.07%

Rating Summary:
    8 Buy, 25 Hold, 11 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 22 | Down: 16 | New: 13
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Shares of Gap (NYSE: GPS) are down nearly 2.5 percent Thursday as traders appear to be selling ahead of the retailer's first-quarter results, expected out after the market close.

The Street is anticipating quarterly earnings of 46 cents per share on sales of $3.47 billion. Gap posted earnings of 44 cents per share in the fourth quarter of 2011 and 40 cents per share in the first quarter of 2011.

On May 3rd, Gap reported same-store sales for the month of April fell 2 percent. The company also said it sees first-quarter EPS of 44-46 cents. The stock fell about 1.6 percent on that day.

While the Dow has been down nearly 6 percent over the past two weeks of trading, Gap shares have been down about 7 percent. On a year-to-date basis, Gap shares are up 43 percent. About 10 percent of this upside came on February 2nd when Gap raised its fourth-quarter outlook.

According to Bloomberg, ten firms suggesting buying shares of Gap ahead of the results, 15 would hold, and just four would sell the stock.

Analyst Commentary:

  • Deutsche Bank - "We remain cautious." The firm is modeling for 47 cents per share in earnings and second-quarter EPS of 38 cents (recently up from 34 cents). The raised estimate reflects "continued good, near-term comps and the benefit from trim quarter-end inventories... That said, we're comfortable being below consensus for both 2H and the full-year, based on concerns around product, the competitive environment in the US/globally, and importantly, valuation expectations which are already built into the stock."

    On the call, Deutsche will be listening for: indications for continued comps growth this year, the susceptibility of Gap's inventory levels to promotions at competitors, and pricing updates for the second half of 2012.

  • Wells Fargo - Sees EPS inline at 46 cents per share, "based on 190bps of merchandise margin decline (due to higher product costs), 70bps of buying & occupancy leverage and 60bps of SG&A leverage." Noted average unit retail improved every month even though traffic was down.

  • Wedbush - Expects the stock to remain flat amid inline results. The firm does not expect management to provide a second-quarter outlook, but sees FY12 guidance likely raised to a range that could still "miss investor optimism..." given the company's conservatism.
Gap generally reports right at the market close. Tune in to our Earnings page to get the latest news!

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