What To Expect From Gap’s Stock Post Q4?

Gap Inc. stock (NYSE: GPS), a specialty retailer selling casual apparel, accessories, and personal care products for men, women, and children under the Gap, Old Navy, and Banana Republic brands, is scheduled to report its fiscal fourth-quarter results on Thursday, March 3. We expect Gap’s stock to likely see little to no movement with revenue beating expectations and earnings falling short. The retailer’s guidance for the crucial holiday quarter was a disappointment. The company expects full-year sales to grow 20% year-over-year as compared to a prior view of 30% growth. It also estimates full-year EPS to range between $1.25 to $1.40 compared to the prior view of $2.10 to $2.25. The company’s management noted that severe supply chain headwinds are impacting its ability to fully meet customer demand. We expect the supply chain issues fueled by the pandemic to continue to impact the company’s fourth-quarter results.

Our forecast indicates that Gap’s valuation is $14 per share, which is in line with the current market price. Look at our interactive dashboard analysis on Gap’s Earnings Preview: What To Expect in Q4? for more details.

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(1) Revenues expected to come marginally ahead of consensus estimates

Trefis estimates Gap’s FQ4 2021 revenues to be $4.5 Bil, slightly ahead of market expectations. The company noted that factory closures spurred by coronavirus outbreaks and backlogs at ports have created a scenario where merchandise isn’t hitting shelves as fast as the retailer expected. In Q3, the company’s sales slipped marginally year-over-year (y-o-y) to $3.9 billion, and the company’s inability to source inventory for its stores (due to supply chain disruptions) was a major reason. It should be noted that Old Navy’s comparable sales fell 9% during the quarter. For full-year 2021, we expect Gap’s revenues to grow 21% y-o-y to $16.7 billion.

2) EPS likely to be miss consensus estimates

Gap’s FQ4 2021 earnings per share (EPS) is expected to come at a loss of 20 cents per Trefis analysis, missing the consensus estimate. To avoid congested ports, Gap chose to ship a larger portion of its merchandise via air freight services. These more expensive shipping options weighed on its profits in Q3. Gap’s adjusted earnings per share came in at $0.27 per share, which was only about half of the $0.50 per share in earnings analysts had expected. Going forward, the retailer’s supply chain troubles are expected to persist into 2022, as well.

(3) Stock price estimate similar to the current market price

Going by our Gap’s Valuation, with an EPS estimate of $1.36 and a P/E multiple of 10.0x in fiscal 2021, this translates into a price of $14, which is in line with the current market price.

It is helpful to see how its peers stack up. GPS Peers shows how Gap compares against its peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Mar 2022
MTD [1]
YTD [1]
Total [2]
 GPS Return -5% -22% -38%
 S&P 500 Return -1% -10% 92%
 Trefis MS Portfolio Return 0% -11% 252%

[1] Month-to-date and year-to-date as of 3/2/2022
[2] Cumulative total returns since the end of 2016

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