Gap's Upcoming Fiscal Q4 Earnings Offer 'Balanced' Upside/Downside Skew, UBS Says

Guidewire Software, Inc GWRE is slated to report second-quarter fiscal 2025 results on Thursday.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

Management expects revenues to be in the range of $282-$288 million. The Zacks Consensus Estimate is pegged at $285.7 million, indicating an 18.6% increase from the prior-year quarter's level.

The consensus estimate for the bottom line is pegged at 52 cents, which remained unchanged in the past 60 days. GWRE reported earnings of 46 cents per share in the year-ago period.

It delivered a trailing four-quarter earnings surprise of 70.4%, on average. Shares of GWRE have gained 69.5% in the past year compared with the Internet-Software industry’s growth of 19.4%.

Factors to Note Ahead of GWRE’s Q2 Release

Guidewire’s performance is likely to have benefited from continued momentum in its cloud-based solutions. Solid deal volume across all tiers (especially Tier 1 insurers) and increasing international momentum, especially in Asia Pacific and Europe, are other tailwinds. The company has been expanding its network of partners (which includes SIs like PwC, Deloitte, Capgemini, Accenture, EY, Sollers, and Cognizant and solution providers) to drive sustained activity and greater value from the platform.

Guidewire Cloud is likely to have continued to gain momentum in the reported quarter with nine deal wins. Out of these deals, seven are for InsuranceSuite Cloud and five are with Tier 1 insurers.

The company’s focus on enhancing the Guidewire Cloud platform with new capabilities is expected to have boosted sales of subscription-based solutions. Management expects subscription and support revenues of $175 million with services revenues of $48 million.

For the second quarter of fiscal 2025, ARR is anticipated to be between $909 million and $914 million. We expect ARR to be $912 million.

Guidewire Software, Inc. Stock Price and EPS Surprise

Guidewire Software, Inc. price-eps-surprise | Guidewire Software, Inc. Quote

GWRE’s efforts to drive cloud operations efficiency to boost cloud margins remain an additional tailwind. The company’s expectation for non-GAAP operating income is pinned in the range of $39-$45 million. Our estimate for non-GAAP operating income is pegged at $42.2 million, up 64.1% year over year.

However, as the company invests more in its ecosystem of implementation partners, service revenues are likely to have been affected. License revenues are likely to have been affected owing to the migration of on-premise customers to the cloud.

Increasing investments in product enhancements along with weakness in global macroeconomic conditions and inflation remain concerning.

What Our Model Says About GWRE Shares

Our proven model does not predict an earnings beat for GWRE this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here.

GWRE has an Earnings ESP of 0.00% and a Zacks Rank #2. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks to Consider

Here are some better-ranked stocks that you may consider, as our model shows that these have the right combination of elements to beat on earnings this season.

DICK'S Sporting Goods

DICK'S Sporting Goods, Inc. DKS is set to release quarterly numbers on March 11. It currently has an Earnings ESP of +0.11% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for DKS’ to-be-reported quarter’s EPS and revenues is pegged at $3.47 and $3.75 billion, respectively. Shares of DKS have gained 25.2% in the past year.

American Eagle Outfitters

American Eagle Outfitters, Inc. AEO presently has an Earnings ESP of +2.29% and a Zacks Rank #3. AEO is scheduled to report quarterly numbers on March 12. The Zacks Consensus Estimate for AEO’s to-be-reported quarter’s bottom line is pegged at 50 cents. The same for revenues is pegged at $1.61 billion. Shares of AEO have lost 45.7% in the past year.

The Gap

The Gap, Inc. GAP has an Earnings ESP of +11.55% and a Zacks Rank #3 at present. GAP is scheduled to report quarterly figures on March 6. The Zacks Consensus Estimate for GAP’s to-be-reported quarter’s earnings and revenues is pegged at 36 cents per share and $4.07 billion, respectively. Shares of GAP have increased 17.7% in the past year.

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

Zacks Investment Research

Gap's 4Q results --expected on Thursday, will likely not move sell-side FY EPS estimates much, UBS analysts say in a research note. The apparel retailer has started off the year worse than UBS appreciated, which could result in a 1Q outlook miss. However, its FY25 outlook could also make Wall Street EPS estimates and the stock rise, the analysts say. "We lack conviction around which scenario will play out and thus see a balanced upside/downside skew around the event," the analysts add. Shares fall 2.8% to $21.98. (sabela.ojea@wsj.com; @sabelaojeaguix)

The Gap, Inc. GAP is expected to register top and bottom-line declines when it reports fourth-quarter fiscal 2024 results on March 6, after the closing bell.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

The Zacks Consensus Estimate for fiscal fourth-quarter earnings is pegged at 36 cents per share, suggesting a 26.5% decline from the year-ago quarter’s reported figure. The consensus estimate for fiscal fourth-quarter earnings has been unchanged in the past 30 days. For revenues, the consensus mark is pegged at $4.1 billion, indicating a 5.4% rise from the year-ago quarter’s reported figure.

The San Francisco, CA-based company has been reporting steady earnings outcomes, as evident from its positive top and bottom-line surprise trends in the trailing four quarters. In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 28.6%. GAP has a trailing four-quarter earnings surprise of 101.2%, on average. Given its positive record, the question is whether the stock can maintain its momentum.

Earnings Whispers for GAP

Our proven model conclusively predicts 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 odds of an earnings beat. You can uncover the best stocks before they are reported with our Earnings ESP Filter.

Gap currently has an Earnings ESP of +11.55% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

What to Expect From GAP’s Q4 Earnings: Key Trends

GAP’s fourth-quarter fiscal 2024 results are expected to reflect its ability to gain market share and revive its brand position. Management has been 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 2024.

Fueled by optimism around its holiday collection, Gap raised its fiscal 2024 outlook. In the fourth quarter of fiscal 2024, the company prioritized enhanced experiences for online and in-store shoppers by refreshing product imagery on its website and remodeling 15% of its stores. Gap was committed to executing with excellence in the fiscal fourth quarter.

Strong performances in the fiscal third quarter and the early fourth quarter positioned the company well for the holiday season. This has bolstered its confidence to raise its fiscal 2024 outlook for sales, gross margin and operating income growth. As a result, management forecast sales growth of 1.5-2% on a 52-week basis for fiscal 2024, implying fourth-quarter net sales growth of 1-2%.

The company’s fourth-quarter fiscal 2024 performance is expected to have gained from improved margins, driven by lower airfreight and increased promotional activity. Lower advertising expenses and technology investments from cost-saving actions bode well. The company has been aggressively undertaking cost-management actions, which are expected to have improved its performance in the to-be-reported quarter.

The Gap, Inc. Price and EPS Surprise

The Gap, Inc. price-eps-surprise | The Gap, Inc. Quote

On the last reported quarter’s earnings call, Gap anticipated the gross margin to expand at least 220 basis points (bps) year over year for fiscal 2024, including 100 bps of commodity cost gains realized in the first half of the fiscal year. This improvement was driven by commodity cost tailwinds in the first half of fiscal 2024, improved inventory management and relatively neutral ROD. In fourth-quarter fiscal 2024, the gross margin is expected to have been consistent with last year. Operating income for fiscal 2024 is projected to increase year over year in the mid-to-high 60%. This represents substantial progress toward restoring historical operating profit levels.

We expect the adjusted gross margin to expand 210 basis points for fiscal 2024. Our model projects adjusted operating income to surge 69.1% year over year in fiscal 2024, with an operating margin of 6.8%. Our model predicts year-over-year adjusted operating expenses to decline 7.1% for the fourth quarter and 1.1% in fiscal 2024.

Gap has been navigating an uncertain macroeconomic environment, including inflationary pressures and other challenges, which are expected to have impacted its top-line performance in the to-be-reported quarter. A decline in consumer confidence — a key economic indicator — could have further affected spending. Rising operating and SG&A expenses may put pressure on the company’s profitability for the fiscal fourth quarter.

Gap’s Price Performance & Valuation Look Promising

The company’s shares have exhibited an uptrend in the past year, rising 17.7%, leaving behind its industry peers and the S&P 500. In the past year, the apparel retailer’s shares have jumped 17.7%, outperforming the industry’s growth of 4.9% and the S&P 500’s rally of 17.1%. Meanwhile, the stock has underperformed the sector’s rise of 24% in the same period.

The Gap stock has displayed a significant rally compared with Deckers Outdoor DECK, American Eagle Outfitters Inc. AEO and Abercrombie & Fitch’s ANF declines of 9.7%, 45.7% and 25%, respectively, in the past year.

GAP's One-Year Price Performance

Abercrombie & Fitch Co. ANF is scheduled to report fourth-quarter fiscal 2024 results on March 5, before the opening bell.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

The Zacks Consensus Estimate for ANF’s fiscal fourth-quarter revenues is pegged at $1.56 billion, suggesting 7.6% growth from that reported in the year-ago quarter. For fiscal fourth-quarter earnings, the consensus mark is pegged at $3.49 per share, implying a 17.5% increase from the $2.97 reported in the year-ago quarter. The consensus estimate for earnings has edged down by a penny in the past seven days.

In the last reported quarter, Abercrombie's earnings beat the consensus estimate by 7.8%. Moreover, ANF has delivered an earnings surprise of 14.8%, on average, in the trailing four quarters.

Earnings Whispers for ANF

Our proven model conclusively predicts an earnings beat for Abercrombie 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. You can uncover the best stocks before they are reported with our Earnings ESP Filter.

Abercrombie currently has an Earnings ESP of +0.59% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Trends Leading Up to ANF’s Q4 Results

ANF has been gaining from continued momentum in the Abercrombie brand, improvement in the Hollister brand and store-optimization efforts. The company has noted that its efforts to improve the positioning of the Hollister brand have been paying off. Investments across stores, digital and technology via its Always Forward Plan bode well.

In January 2025, Abercrombie provided a positive business update, thanks to a robust performance in the holiday season. The company noted that its fiscal fourth-quarter through holiday season performance was ahead of management’s expectations issued in November.

Net sales growth for the period was driven by comparable sales (comps) across regions and brands in the holiday selling period. This is backed by the positive response to its exciting product assortments and engaging marketing.

Driven by a stellar holiday performance, management hiked the sales view for the fourth quarter and fiscal 2024 while reiterating the outlook for the other metrics. Robust customer-driven brands, relevant brand playbooks, major global growth opportunities leveraging capabilities in owned and operated channels, and a solid omnichannel base, coupled with a healthy balance sheet and a consistent free cash flow, are likely to boost growth.

Abercrombie & Fitch Company Price and EPS Surprise

Abercrombie & Fitch Company price-eps-surprise | Abercrombie & Fitch Company Quote

Management expects net sales growth of 7-8% for the fiscal fourth quarter. The operating margin for the fiscal fourth quarter is projected to be 16%. This guidance does not include the impacts of 550 basis points from the 53rd week and about 50 basis points from foreign currency. The company retained its operating margin view of 16% and the effective tax rate guidance in the high 20s for the fourth quarter of fiscal 2024.

For fiscal 2024, Abercrombie anticipates net sales growth of 15% compared with the previously mentioned 14-15%. Management expects an operating margin of 15% and an effective tax rate in the mid-20s for fiscal 2024. The sales outlook excludes the impacts of 120 basis points from the 53rd week.

Our model predicts fourth-quarter fiscal 2024 total revenues to increase 7.4% year over year. We expect sales for the Abercrombie brand to grow 6.6%. Sales for Hollister are expected to improve 8.2%.

However, Abercrombie has been witnessing elevated operating costs on higher technology expenses and incentive-based compensation. Additionally, inflation and increased investment for the 2025 Always Forward Plan initiatives are likely to have been concerning in the to-be-reported quarter. Our model estimates a year-over-year increase of 6% in adjusted operating expenses for the fiscal fourth quarter.

ANF’s Price Performance & Valuation

Abercrombie’s shares have exhibited a decline in the past year, underperforming its industry peers and the Zacks Retail-Wholesale sector. In the past year, the New Albany, OH-based company’s shares have declined 25% against the industry and the sector’s growth of 4.9% and 23.9%, respectively. The company has also lagged the S&P 500’s rally of 17.1%.

ANF’s One-Year Price Performance