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Gap Beats on 2Q16 Earnings and Revenue: Is It Enough?

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Gap’s earnings in 2Q16

Gap (GPS) reported its 2Q16 results after the Market closed on Thursday, August 18, 2016. It cruised ahead of Wall Street expectations on both its top and bottom lines. Its adjusted profit was $0.60 per share, which was $0.01 or 2.4% higher than Wall Street analysts’ consensus of $0.59 per share.

On a comparative yearly basis, EPS (earnings per share) declined 6.3% compared to $0.64 in 2Q15. When compared sequentially with 1Q16, EPS increased almost 88% from $0.32.

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About GAP

Headquartered in San Francisco, California, Gap is a global apparel retail company. It sells apparel, accessories, and personal care products for men, women, children, and babies in more than 90 countries. The company’s brands include Gap, Banana Republic, Old Navy, Athleta, and Intermix. It operates through 3,300 company-operated stores, 450 franchise stores, and e-commerce sites.

The First Trust Large Cap Value AlphaDex ETF (FTA) invests 1.1% of its holdings in Gap.

Valuations update and stock recommendations

Gap is currently trading at a one-year forward PE (price-to-earnings) ratio of 13.6x. That compares to 16.0x, 19.5x, and 20.2x for PVH (PVH), VF (VFC), and Ralph Lauren (RL), respectively.[1. as of August 22, 2016]

The average 12-month price target by 23 analysts covering Gap is $23.23. That indicates that the stock could lose about 13.5% of its value over the next year.

Three of the 23 analysts have recommended a “buy” for the stock, 22 have recommended a “hold,” and eight have recommended a “sell.”

What’s this series all about?

In this series, we’ll provide an earnings overview of Gap’s 2Q16 results. We’ll also review Gap’s 2Q16 performance, analyze its key revenue drivers, look at the performance of its stock, and analyze its valuations while comparing them to other fashion and apparel stocks.

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