Update: The Gap's Earnings

Aug.22.14 | About: The Gap, (GPS)

Summary

After the market closed on Aug. 21, The Gap reported revenue and earnings that topped analyst estimates, sending shares up modestly in after hours trading.

While this confirmed my opinion that the business provides potential for a safer long-term play, the fact that growth was stronger than expected served as a surprise.

While the company's strong performance was not anticipated, my previous article implied that the future for the company could be bright even if sales and profits don't soar moving forward.

After the market closed on Aug. 21, shares of The Gap (NYSE:GPS) inched up almost 1% to $43.50 in response to the retailer's management team posting revenue and earnings that exceeded expectations for the second quarter of its 2014 fiscal year. According to its press release, the company's revenue for the quarter came out to $3.98 billion, representing a roughly 3% improvement over the $3.87 billion management reported for the second quarter of its 2013 fiscal year and coming in just a hair above the $3.97 billion analysts anticipated as its store rose 4% year-over-year from 3,428 locations to 3,565. During this timeframe, however, comparable store sales were flat.

Earnings Overview
Last Year's Forecasted Actual
Revenue (billions) $3.87 $3.97 $3.98
Earnings per Share $0.64 $0.69 $0.75
Click to enlarge

Looking at profits, the situation appears even more favorable for Gap. For the quarter, the company reported earnings per share of $0.75. This represents a 17% jump compared to the $0.64 reported during last year's quarter and came in notably higher than the $0.69 analysts hoped to see. In addition to benefiting from revenue growth, the business enjoyed a 6% drop in share count as well as a drop in its operating expenses from 27% of sales to 25.2%.

In a previous article I wrote on the company, I highlighted that it's not likely to be a growth name anytime soon because of its size and operating history. Although it looks as though I was wrong about how quickly the business may grow moving forward, the case remains that Gap appears to be a good long-term prospect that could serve as a nice safer play in your portfolio.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.