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Abercrombie (ANF) Up 2% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Abercrombie & Fitch (ANF - Free Report) . Shares have added about 2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Abercrombie due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Abercrombie Q1 Earnings & Sales Top Estimates
Abercrombie & Fitch reported better-than-expected top and bottom-line numbers for first-quarter fiscal 2021. Also, its earnings and sales improved year over year. Further, the fiscal first quarter marked the company’s return to profits after reporting a loss in the prior quarter. Moreover, it reported strong growth in key metrics on a two-year basis (compared with first-quarter fiscal 2019), reflecting robust growth from the pre-pandemic levels.
Abercrombie delivered adjusted earnings of 67 cents per share in first-quarter fiscal 2021 against a loss per share of $3.29 reported in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of a loss of 39 cents. Earnings growth demonstrates the company’s robust digital sales momentum coupled with gross margin expansion and tight expense management.
Total net sales of $781.4 million advanced 61% year over year and surpassed the Zacks Consensus Estimate of $688.4 million. The top line benefited from strong digital momentum, with digital sales increasing 45% year over year to $403 million. Digital sales contributed about 52% to total sales. Notably, digital sales reflected robust growth in every month of the reported quarter. The digital business mainly benefited from the addition of new customers in the channel, backed by robust digital marketing efforts. Also, high customer retention and spend per customer aided sales growth.
Additionally, the company is gaining from the reopening of stores across all regions, except for Western Europe. In the reported quarter, it had 92% of its store base operational, with closures mainly pertaining to Western Europe. Notably, the company witnessed improvement in store performance on both year-over-year and sequential basis. Consequently, global store sales improved 77% year over year in the fiscal first quarter.
Compared with the pre-pandemic levels of first-quarter fiscal 2019, Abercrombie’s net sales improved 6% despite the closure of 1.3 million gross square feet (nearly 20%) of its store base from the referred 2019 period. Also, compared with first-quarter fiscal 2019 the company recorded 18% sales growth in the United States, which is its largest market. Digital sales improved nearly 81% from the pre-pandemic levels.
Brand-wise, net sales advanced 62% year over year to $442.4 million and 60% to $339 million, respectively, for the Hollister and Abercrombie brands. From a geographical viewpoint, net sales rose 72% in the United States and 40% in International markets, including growth of 41% in EMEA and 42% in APAC.
Gross margin expanded 900 basis points (bps) year over year to 63.4%, gaining from increased average unit retail on reduced promotions. Additionally, gross margin benefited from tightly managed inventories and favorable responses from new and existing customers, which led to improved price realization. From the pre-pandemic levels, the gross margin expanded by 290 bps.
Adjusted operating expenses increased 2% year over year. Meanwhile, adjusted operating expenses, as a percentage of sales, of 55.9% declined significantly from 88.6% in the year-ago quarter.
Adjusted operating income totaled $60 million as compared with an operating loss of $166 million in the year-ago quarter. Moreover, the operating margin expanded by 1,100 bps from the pre-pandemic levels. Gross margin expansion along with tight expense management boosted operating income in the reported quarter.
Other Financials
Abercrombie ended the reported quarter with cash and cash equivalents of $909 million, and long-term gross borrowings (under senior secured notes) of $344.3 million. Also, inventories were $388.6 million, down 8.9% from the prior-year quarter. Moreover, the company had available liquidity of $1.1 billion as of May 1, 2021. Its liquidity comprises cash and equivalents as well as borrowings available under the senior secured asset-based revolving credit facility of nearly $223 million.
As of May 1, 2021, net cash used for operating activities amounted to $131.4 million. Capital expenditure in the fiscal first quarter was $14.4 million.
For fiscal 2021, the company expects capital expenditure of $100 million, whereas it spent $102 in fiscal 2020. About 50% of the capital spending is expected to be used for investments in digital and technology.
In first-quarter fiscal 2021, the company resumed its share-repurchase program, buying back 1.1 million shares for $35 million. As of May 1, 2021, it is eligible to repurchase 8.9 million shares under its prior authorization approved in February 2021.
Store Update
As part of its store-optimization plans, Abercrombie plans to reposition larger format flagship locations to smaller omni-channel enabled stores. Progressing on the efforts, the company earlier closed eight European flagship locations in fiscal 2020, bringing the total count of flagship stores to seven at the beginning of fiscal 2021. In the first quarter of fiscal 2021, it closed the Abercrombie & Fitch brand’s store in Orchard Road Singapore flagship, bringing the flagships store count to six.
Including the aforementioned closure, the company closed eight stores in the fiscal first quarter. It also opened four stores in the reported quarter. As of May 1, 2021, the company’s total store base was 731, including 533 stores in the United States and 198 stores internationally.
Outlook
Abercrombie did not provide guidance for fiscal 2021. However, the company expects to continue with the progress made since 2020. It anticipates retaining the gross margin rate through continued tight inventory management, which is likely to offset the potential cost headwinds for the rest of the year. For operating expenses, the company expects to tightly control costs, with a focus on using a portion of the occupancy savings for funding fulfillment, marketing and digital investments.
In second-quarter fiscal 2021, the company anticipates net sales above the comparable 2019 level of $841 million. It does not expect the government mandates for store closures to increase from the current levels. However, it awaits more clarity on when the remaining countries in EMEA will resume full operations. The company anticipates successfully managing the supply chain and labor constraints.
It expects the gross margin rate to increase at least 200 bps in the fiscal second quarter from 60.7% reported in the prior-year quarter. The company remains cautiously optimistic about its ability to deliver AUR improvements through reduced promotions and clearance activity as well as potential FX tailwinds. This is likely to be partly offset by higher product costs. Operating expenses are expected to increase 15-20% year over year from adjusted operating expenses of $404 million reported last year. Operating expense growth is likely to be driven by the reversal of certain COVID-related savings earned in 2020, higher fulfillment expenses, and increased marketing, payroll and digital project spending. This is expected to be partly offset by lower occupancy costs.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 785.46% due to these changes.
VGM Scores
Currently, Abercrombie has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Abercrombie has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Abercrombie (ANF) Up 2% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Abercrombie & Fitch (ANF - Free Report) . Shares have added about 2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Abercrombie due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Abercrombie Q1 Earnings & Sales Top Estimates
Abercrombie & Fitch reported better-than-expected top and bottom-line numbers for first-quarter fiscal 2021. Also, its earnings and sales improved year over year. Further, the fiscal first quarter marked the company’s return to profits after reporting a loss in the prior quarter. Moreover, it reported strong growth in key metrics on a two-year basis (compared with first-quarter fiscal 2019), reflecting robust growth from the pre-pandemic levels.
Abercrombie delivered adjusted earnings of 67 cents per share in first-quarter fiscal 2021 against a loss per share of $3.29 reported in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of a loss of 39 cents. Earnings growth demonstrates the company’s robust digital sales momentum coupled with gross margin expansion and tight expense management.
Total net sales of $781.4 million advanced 61% year over year and surpassed the Zacks Consensus Estimate of $688.4 million. The top line benefited from strong digital momentum, with digital sales increasing 45% year over year to $403 million. Digital sales contributed about 52% to total sales. Notably, digital sales reflected robust growth in every month of the reported quarter. The digital business mainly benefited from the addition of new customers in the channel, backed by robust digital marketing efforts. Also, high customer retention and spend per customer aided sales growth.
Additionally, the company is gaining from the reopening of stores across all regions, except for Western Europe. In the reported quarter, it had 92% of its store base operational, with closures mainly pertaining to Western Europe. Notably, the company witnessed improvement in store performance on both year-over-year and sequential basis. Consequently, global store sales improved 77% year over year in the fiscal first quarter.
Compared with the pre-pandemic levels of first-quarter fiscal 2019, Abercrombie’s net sales improved 6% despite the closure of 1.3 million gross square feet (nearly 20%) of its store base from the referred 2019 period. Also, compared with first-quarter fiscal 2019 the company recorded 18% sales growth in the United States, which is its largest market. Digital sales improved nearly 81% from the pre-pandemic levels.
Brand-wise, net sales advanced 62% year over year to $442.4 million and 60% to $339 million, respectively, for the Hollister and Abercrombie brands. From a geographical viewpoint, net sales rose 72% in the United States and 40% in International markets, including growth of 41% in EMEA and 42% in APAC.
Gross margin expanded 900 basis points (bps) year over year to 63.4%, gaining from increased average unit retail on reduced promotions. Additionally, gross margin benefited from tightly managed inventories and favorable responses from new and existing customers, which led to improved price realization. From the pre-pandemic levels, the gross margin expanded by 290 bps.
Adjusted operating expenses increased 2% year over year. Meanwhile, adjusted operating expenses, as a percentage of sales, of 55.9% declined significantly from 88.6% in the year-ago quarter.
Adjusted operating income totaled $60 million as compared with an operating loss of $166 million in the year-ago quarter. Moreover, the operating margin expanded by 1,100 bps from the pre-pandemic levels. Gross margin expansion along with tight expense management boosted operating income in the reported quarter.
Other Financials
Abercrombie ended the reported quarter with cash and cash equivalents of $909 million, and long-term gross borrowings (under senior secured notes) of $344.3 million. Also, inventories were $388.6 million, down 8.9% from the prior-year quarter. Moreover, the company had available liquidity of $1.1 billion as of May 1, 2021. Its liquidity comprises cash and equivalents as well as borrowings available under the senior secured asset-based revolving credit facility of nearly $223 million.
As of May 1, 2021, net cash used for operating activities amounted to $131.4 million. Capital expenditure in the fiscal first quarter was $14.4 million.
For fiscal 2021, the company expects capital expenditure of $100 million, whereas it spent $102 in fiscal 2020. About 50% of the capital spending is expected to be used for investments in digital and technology.
In first-quarter fiscal 2021, the company resumed its share-repurchase program, buying back 1.1 million shares for $35 million. As of May 1, 2021, it is eligible to repurchase 8.9 million shares under its prior authorization approved in February 2021.
Store Update
As part of its store-optimization plans, Abercrombie plans to reposition larger format flagship locations to smaller omni-channel enabled stores. Progressing on the efforts, the company earlier closed eight European flagship locations in fiscal 2020, bringing the total count of flagship stores to seven at the beginning of fiscal 2021. In the first quarter of fiscal 2021, it closed the Abercrombie & Fitch brand’s store in Orchard Road Singapore flagship, bringing the flagships store count to six.
Including the aforementioned closure, the company closed eight stores in the fiscal first quarter. It also opened four stores in the reported quarter. As of May 1, 2021, the company’s total store base was 731, including 533 stores in the United States and 198 stores internationally.
Outlook
Abercrombie did not provide guidance for fiscal 2021. However, the company expects to continue with the progress made since 2020. It anticipates retaining the gross margin rate through continued tight inventory management, which is likely to offset the potential cost headwinds for the rest of the year. For operating expenses, the company expects to tightly control costs, with a focus on using a portion of the occupancy savings for funding fulfillment, marketing and digital investments.
In second-quarter fiscal 2021, the company anticipates net sales above the comparable 2019 level of $841 million. It does not expect the government mandates for store closures to increase from the current levels. However, it awaits more clarity on when the remaining countries in EMEA will resume full operations. The company anticipates successfully managing the supply chain and labor constraints.
It expects the gross margin rate to increase at least 200 bps in the fiscal second quarter from 60.7% reported in the prior-year quarter. The company remains cautiously optimistic about its ability to deliver AUR improvements through reduced promotions and clearance activity as well as potential FX tailwinds. This is likely to be partly offset by higher product costs. Operating expenses are expected to increase 15-20% year over year from adjusted operating expenses of $404 million reported last year. Operating expense growth is likely to be driven by the reversal of certain COVID-related savings earned in 2020, higher fulfillment expenses, and increased marketing, payroll and digital project spending. This is expected to be partly offset by lower occupancy costs.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 785.46% due to these changes.
VGM Scores
Currently, Abercrombie has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Abercrombie has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.