The Gap Inc. (GPS) and Abercrombie & Fitch Co. (ANF) had unusual call volumes on February 6, 2013 with a daily call volume ratio of 3.01 and 3.50, respectively. Unusual option activities can be an indicator or precursor of a major movement for the underlying stock. With the upcoming earnings for GPS and ANF, this article will update the recent developments and provide the fundamental and technical analysis for both companies.
The Gap Inc.
The Gap, Inc., a global specialty apparel company, offering apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands. GPS closed at $33.22 with 0.21% loss on February 6, 2013. GPS had been trading in the range of $21.15-$37.85 in the past 52 weeks. GPS has a beta of 1.28.
On February 5, 2013, Safilo Group, global leader in the premium eyewear sector, and Banana Republic renewed the licensing agreement through January 31, 2019 for design, manufacturing and distribution of optical frames and sunglass collections. This agreement will give further engine to the development and distribution of one of the most representative brands of elevated design at approachable prices. On January 30, 2013, Diane Von Furstenberg, named Forbes' most powerful woman in fashion in 2012, is designing a second kids and babies collection for Gap Inc. set to launch in spring, as reported by New York Business Journal. With the success of the first collaboration, Gap's management has high expectation for the second DVF Gap collection.
Analysts, on average, are expecting an EPS of $0.69 for the quarter ending in January, 2013 with revenue of $4.62B. GPS is expected to release Q4, 2012 earnings on February 28, 2013 at 5:00PM. On December 27, 2013, Standpoint Research upgraded GPS from Sell to Hold.
Fundamentally, GPS has an enterprise value of $15.44B with a market cap of $15.93B. GPS has a total cash of $1.77B with a total debt of $1.25B. GPS generates an operating cash flow of $1.95B with a levered free cash flow of $1.38B. GPS has a zero growth rate for the past year average, which is lower than the industry average of 4.1. GPS has higher operating margin of 11.3%, ttm, and net margin of 6.6%, ttm, comparing to the averages of 9.3% and 5.5%, ttm, respectively. GPS generates higher ROE of 34.4, as compared to the average of 21.5. GPS's P/E of 16.3 is lower than the industry average of 18.8 but higher than GPS' 5 year average of 12.6. GPS's forward P/E of 11.9 is lower than S&P 500's average of 14.0.
Technically, the MACD (12, 26, 9) indicator is showing a slightly bullish trend, but the MACD difference has been converging in the last few trading days. RSI (14) is indicating a slightly bullish lean at 56.54. GPS is currently trading above its 50-day MA of $32.30 and 200-day MA of $31.60. The next resistance is $33.96, the R1 pivot point, followed by $35.25, the R2 pivot point, as seen from the chart below.
Abercrombie & Fitch Co.
Abercrombie & Fitch Co., a specialty retailer of casual apparel for men, women and kids, engages in selling an array of products, ranging from casual sportswear apparel to personal care products and accessories for men, women and kids under the Abercrombie & Fitch, Abercrombie kids, and Hollister brands. ANF closed at $50.92 with 0.04% gain. ANF had been trading in the range of $28.64-$54.10 in the past 52 weeks. ANF has a relatively higher beta of 1.73, comparing to GPS.
Improving inventories and Europe Market: ANF's inventory position has shown a great deal of improvement and Europe market seems to be stabilized, as stated by the analyst, William Blair.
Analysts, on average, are expecting an EPS of $1.95 for the quarter ending in January, 2013 with revenue of $1.48B. ANF will release its Q4, 2013 earnings on February 13, 2013. ANF had outperformed the Zacks Consensus Estimate for the last 3 quarters, delivering an average beat of 36.4%. On January 21, 2013, Zacks Investment Research upgraded ANF to a Strong Buy rating and reported,
"The Zacks Consensus Estimate for fiscal 2012 increased 18.4% to $2.96 per share as most of the estimates were revised higher over the last 90 days. The current estimate is within the guidance range provided by Abercrombie. For fiscal 2013, the estimates were revised higher over the same time frame, lifting the Zacks Consensus Estimate by 37.5% to $3.58 per share."
ANF's margin may be negatively impacted with continuing discount and promotions as ANF continued to fight with fast-fashion retailers, such as Forever 21 and Zaras. Investors also need to watch out for the declining international same-store sales which caused the revenue growth to trail the store growth.
Fundamentally, ANF has an enterprise value of $3.80B with a market cap of $4.05B. ANF generates a total cash of $369.57M with a total debt of $124.48M. ANF generates an operating cash flow of $524.84M with a levered free cash flow of $154.30M. ANF has a higher revenue growth (3 year average) of 6.1, as compared to the average of 4.1. ANF has lower operating margin of 3.9%, ttm, and net margin of 2.5%, as compared to the industry averages of 9.3% and 5.5%, ttm, respectively. ANF also generates lower ROE of 6.1, comparing to the average of 21.5. ANF's P/E of 39.5 is higher than the industry average of 18.1 but lower than ANF's 5 year average of 50.5. ANF's forward P/E of 13.0 is lower than S&P 500's average of 14.0.
Technically, the MACD (12, 26, 9) is showing a slightly bearish trend. The momentum indicator, RSI (14), is indicating a bullish lean. ANF is currently trading above its 50-day MA of $47.90 and 200-day MA of $38.85. The next resistance is $51.90, the R1 pivot point, followed by $53.81, the R2 pivot point, as seen from the chart below.
Other Competitors Update
On February 6, 2013, Ralph Lauren Corp. (RL) posted its third-quarter, 2013 adjusted earnings of $2.40 per share, increasing 34.8% from the same quarter year-ago and beating Zacks Consensus Estimate of $2.21 per share. The increase was mainly driven by a rise in sales, improved margin and a lower tax rate. On February 5, 2013, Aeropostale Inc. (ARO) was downgraded by Zacks to a Strong Sell as the company witnessed sharp downward estimate revisions after reporting soft holiday sales numbers that prompted management to take a conservative stance on its future earnings.
In short, despite the positive expectation for the upcoming earnings, ANF investors have to watch closely for the same-store sales report and the margin numbers. GPS may still have more upside potential prior to the earnings. As always, it is suggested for conservative investors to wait after the earnings release to establish long-term positions to avoid extra volatility.
Note: All prices are quoted from the closing of February 6, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.