The Gap Earnings: Here’s Why Investors Are Buying Shares Now

S&P 500 (NYSE:SPY) component The Gap Inc. (NYSE:GPS) reported its results for the first quarter. The Gap is an international specialty retailer that sells casual apparel, accessories and personal care products for men, women, and children.

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The Gap Earnings Cheat Sheet for the First Quarter

Results: Net income for The Gap Inc. remained steady at $233 million (47 cents per diluted share) from the year-earlier quarter.

Revenue: Rose 5.8% to $3.49 billion from the year-earlier quarter.

Actual vs. Wall St. Expectations: The Gap Inc. beat the mean analyst estimate of 46 cents per share. Analysts were expecting revenue of $3.46 billion.

Quoting Management: “During the quarter, we improved sales, grew earnings per share, and continued investing in the business to drive performance,” said Glenn Murphy, chairman and chief executive officer of Gap Inc. “We’re pleased with the progress we’re making against our 2012 priorities in both our domestic business and global growth initiatives.”

Key Stats:

Last quarter marked the fifth straight quarter that the company saw shrinking gross margins, as gross margin fell 0.1 percentage point to 39.4% from the year-earlier quarter. Over that time, margins have contracted on average 3.1 percentage points per quarter on a year-over-year basis.

Gap (NYSE:GPS) has now topped analyst estimates for the last four quarters. It beat the mark by 2 cents in the fourth quarter of the last fiscal year, by one cent in the third quarter of the last fiscal year, and by one cent in the second quarter of the last fiscal year.

Last quarter’s year-over-year revenue increase follows two quarters of revenue declines. Revenue fell 1.9% in the fourth quarter of the last fiscal year and fell 1.9% in the third quarter of the last fiscal year.

Net income has dropped 23.7% year-over-year on average across the last five quarters. Performance was hurt by a 40.3% decline in the fourth quarter of the last fiscal year from the year-earlier quarter.

Looking Forward: Next quarter’s results are expected to be more favorable for the company. Over the past sixty days, the average estimate for the second quarter has reached 37 cents per share, up from 34 cents. For the fiscal year, the average estimate has moved up from $1.79 a share to $1.94 over the last ninety days.

(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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