NEW YORK (TheStreet) -- The Gap (GPS) shares are up 4.3% to $40.94 on Friday after increasing its first quarter earnings forecast in a note after the bell yesterday.
The company said that it expects to earn between 56 cents and 57 cents per share during the quarter, beating analysts consensus estimates of 53 cents per share.
The increased profit expectation rests on the back of increased sales across the board for the clothing retailer. Same store sales in April rose 9%, ahead of the Street's estimate of a 0.5% increase, while net sales for the quarter of $3.77 billion beat analysts estimates of $3.69 billion.
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TheStreet Ratings team rates GAP INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate GAP INC (GPS) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its notable return on equity, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures, increase in stock price during the past year and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Specialty Retail industry and the overall market, GAP INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- Net operating cash flow has slightly increased to $752.00 million or 5.76% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -4.81%.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- GAP INC's earnings per share declined by 6.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GAP INC increased its bottom line by earning $2.75 versus $2.32 in the prior year. This year, the market expects an improvement in earnings ($2.90 versus $2.75).
- The current debt-to-equity ratio, 0.46, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.81 is somewhat weak and could be cause for future problems.
- You can view the full analysis from the report here: GPS Ratings Report