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Abercrombie (ANF) Jumps on Q4 Earnings Beat, Guides for FY18
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Abercrombie & Fitch Co. (ANF - Free Report) reported robust fourth-quarter fiscal 2017, wherein both earnings and sales beat the Zacks Consensus Estimate and improved year over year. Notably, this was the third straight positive earnings surprise and the fourth consecutive sales beat.
Amid a highly promotional retail backdrop, results gained from significant progress in its strategic initiatives and strength in Hollister as well as direct-to-customer business.
Consequently, shares of this Zacks Rank #1 (Strong Buy) stock surged 11.9% on Mar 7. Additionally, initiatives like strategic capital investments, cost-saving efforts, loyalty and marketing programs aided Abercrombie to outperform the industry in the past month. The stock gained 18.7% compared with the industry’s growth of 5.3%.
Q4 Synopsis
The company posted fourth-quarter adjusted earnings of $1.38 per share, significantly outpacing the Zacks Consensus Estimate of $1.13. Moreover, the bottom line increased a whopping 84% from 75 cents earned in the year-ago quarter. Earnings benefited from more-than-double operating income in the quarter, as well as positive currency impact. Notably, currency tailwinds, net of hedging, were roughly 14 cents per share in the quarter.
Abercrombie & Fitch Company Price, Consensus and EPS Surprise
Net sales of $1,193.2 million surpassed the Zacks Consensus Estimate of $1,169 million and grew 15% year over year. The upside was driven by comparable sales (comps) growth of 9%, benefits of 4% from the additional week and a positive currency impact of 3%.
Brand-wise, net sales improved 19% to $709.2 million at Hollister, while sales for the Abercrombie brand rose 9% to $484 million. From a geographical viewpoint, net sales grew 13% and 20%, in the United States and international markets, respectively. Moreover, the company’s direct-to-consumer business continued to perform well, accounting for nearly 34% of the net sales and recording 18% increase in comparable sales.
The company remains encouraged by comps performance that benefited from the rise in traffic and conversion. Notably, positive traffic trends improved sequentially from the third quarter. Further, we note that the company’s comps improved sequentially throughout fiscal 2017, with positive comps across brands and geographies in the fourth quarter.
On a segmental basis, comps for Hollister increased 11%, while Abercrombie reported 5% growth. Moreover, comps improved 11% in the United States and 5% internationally.
While the Hollister brand reflected persistent positive momentum from the previous quarters, Abercrombie showed further signs of improvement, returning to positive comps trend in the fourth quarter.
Gross profit margin contracted 90 basis points (bps) to 58.4%, owing to increased average unit cost and lower average unit retail.
Abercrombie reported adjusted operating income of $148 million for the quarter, substantially up from adjusted operating income of $61 million recorded in the prior-year period. This marks more than double operating income growth for the quarter. Despite the lower gross margins, the increase in operating income is attributed to significant expense leverage during the quarter.
Financials
Abercrombie ended fiscal 2017 with cash and cash equivalents of $675.6 million and gross borrowings under its term loan agreement of $253.3 million. As of Feb 3, 2018, inventories were $424.4 million, up 6% from the prior-year period.
On Feb 23, the company declared a quarterly dividend of 20 cents per share on the Class A Common Stock. This is payable Mar 19, to shareholders of record as of Mar 9.
Store Update
In fiscal 2017, the company inaugurated nine new stores, comprising six stores in the United States and one international full-price store as well as two outlet stores. Additionally, the company shut down 39 stores in the fiscal, mainly comprising of stores in the United States.
Management expects to introduce 21 full-price stores in fiscal 2018, including 11 stores in the United States and 10 in international locations. Moreover, it plans to shut down up to 60 stores in the United States in fiscal 2018, through natural lease expirations.
Outlook
We note that the company made significant progress on its initiatives in fiscal 2017. This helped it reach significant milestones, including $2 billion sales generated at Hollister, Abercrombie’s return to positive comps trend in the fourth quarter and record digital-sales growth across all brands. Going forward, the company remains keen on further improving customer experience by investing in loyalty programs, stores, direct-to-consumer and omni-channel capabilities. Further, the company expects to maintain its disciplined approach to expense management to drive top- and bottom-line growth.
For fiscal 2018, both comps and sales are projected to be up low-single digits. Top line gains from the favorable currency rates will be offset by the absence of the additional week sales in 2017. Favorable foreign currency rate is expected to contribute nearly $50 million to sales and $15 million to operating income in fiscal 2018.
Gross margin is projected to be slightly above 59.7% recorded in fiscal 2017, while it will remain pressured in first-quarter 2018. Operating expense, including other operating income, is expected to increase nearly 1% from $2 billion recorded in fiscal 2017. This will continue to reflect expense leverage while supporting ongoing investments in strategic initiatives. Abercrombie also expects average shares outstanding of about 71 million.
Furthermore, the company expects core tax rate to be in the mid-to-high 20s range, driven by the recently enacted tax reform. However, including nearly $10 million of discrete non-cash income tax charges related to share-based compensation accounting standards, it expects the effective tax rate in the mid-to-high 30s range.
For the first quarter, the company estimates effective tax rate of low-double digits to low teens, including $9 million from the aforementioned non-cash income tax charges.
Additionally, the company envisions capital expenditures to be roughly $130 million for fiscal 2018. This will include $85 million for store updates and new stores and nearly $45 million for direct-to-consumer and omni-channel investments, information technology and other projects.
Foot Locker, with a long-term earnings growth rate of 5%, has reported positive earnings surprise in the last two quarters.
Gap, with a long-term earnings growth rate of 8%, has delivered an average positive earnings surprise of 11.1% in the trailing four quarters.
Nordstrom, with a long-term earnings growth rate of 6%, has come up with an average positive earnings surprise of 16.8% in the trailing four quarters.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Abercrombie (ANF) Jumps on Q4 Earnings Beat, Guides for FY18
Abercrombie & Fitch Co. (ANF - Free Report) reported robust fourth-quarter fiscal 2017, wherein both earnings and sales beat the Zacks Consensus Estimate and improved year over year. Notably, this was the third straight positive earnings surprise and the fourth consecutive sales beat.
Amid a highly promotional retail backdrop, results gained from significant progress in its strategic initiatives and strength in Hollister as well as direct-to-customer business.
Consequently, shares of this Zacks Rank #1 (Strong Buy) stock surged 11.9% on Mar 7. Additionally, initiatives like strategic capital investments, cost-saving efforts, loyalty and marketing programs aided Abercrombie to outperform the industry in the past month. The stock gained 18.7% compared with the industry’s growth of 5.3%.
Q4 Synopsis
The company posted fourth-quarter adjusted earnings of $1.38 per share, significantly outpacing the Zacks Consensus Estimate of $1.13. Moreover, the bottom line increased a whopping 84% from 75 cents earned in the year-ago quarter. Earnings benefited from more-than-double operating income in the quarter, as well as positive currency impact. Notably, currency tailwinds, net of hedging, were roughly 14 cents per share in the quarter.
Abercrombie & Fitch Company Price, Consensus and EPS Surprise
Abercrombie & Fitch Company Price, Consensus and EPS Surprise | Abercrombie & Fitch Company Quote
Net sales of $1,193.2 million surpassed the Zacks Consensus Estimate of $1,169 million and grew 15% year over year. The upside was driven by comparable sales (comps) growth of 9%, benefits of 4% from the additional week and a positive currency impact of 3%.
Brand-wise, net sales improved 19% to $709.2 million at Hollister, while sales for the Abercrombie brand rose 9% to $484 million. From a geographical viewpoint, net sales grew 13% and 20%, in the United States and international markets, respectively. Moreover, the company’s direct-to-consumer business continued to perform well, accounting for nearly 34% of the net sales and recording 18% increase in comparable sales.
The company remains encouraged by comps performance that benefited from the rise in traffic and conversion. Notably, positive traffic trends improved sequentially from the third quarter. Further, we note that the company’s comps improved sequentially throughout fiscal 2017, with positive comps across brands and geographies in the fourth quarter.
On a segmental basis, comps for Hollister increased 11%, while Abercrombie reported 5% growth. Moreover, comps improved 11% in the United States and 5% internationally.
While the Hollister brand reflected persistent positive momentum from the previous quarters, Abercrombie showed further signs of improvement, returning to positive comps trend in the fourth quarter.
Gross profit margin contracted 90 basis points (bps) to 58.4%, owing to increased average unit cost and lower average unit retail.
Abercrombie reported adjusted operating income of $148 million for the quarter, substantially up from adjusted operating income of $61 million recorded in the prior-year period. This marks more than double operating income growth for the quarter. Despite the lower gross margins, the increase in operating income is attributed to significant expense leverage during the quarter.
Financials
Abercrombie ended fiscal 2017 with cash and cash equivalents of $675.6 million and gross borrowings under its term loan agreement of $253.3 million. As of Feb 3, 2018, inventories were $424.4 million, up 6% from the prior-year period.
On Feb 23, the company declared a quarterly dividend of 20 cents per share on the Class A Common Stock. This is payable Mar 19, to shareholders of record as of Mar 9.
Store Update
In fiscal 2017, the company inaugurated nine new stores, comprising six stores in the United States and one international full-price store as well as two outlet stores. Additionally, the company shut down 39 stores in the fiscal, mainly comprising of stores in the United States.
Management expects to introduce 21 full-price stores in fiscal 2018, including 11 stores in the United States and 10 in international locations. Moreover, it plans to shut down up to 60 stores in the United States in fiscal 2018, through natural lease expirations.
Outlook
We note that the company made significant progress on its initiatives in fiscal 2017. This helped it reach significant milestones, including $2 billion sales generated at Hollister, Abercrombie’s return to positive comps trend in the fourth quarter and record digital-sales growth across all brands. Going forward, the company remains keen on further improving customer experience by investing in loyalty programs, stores, direct-to-consumer and omni-channel capabilities. Further, the company expects to maintain its disciplined approach to expense management to drive top- and bottom-line growth.
For fiscal 2018, both comps and sales are projected to be up low-single digits. Top line gains from the favorable currency rates will be offset by the absence of the additional week sales in 2017. Favorable foreign currency rate is expected to contribute nearly $50 million to sales and $15 million to operating income in fiscal 2018.
Gross margin is projected to be slightly above 59.7% recorded in fiscal 2017, while it will remain pressured in first-quarter 2018. Operating expense, including other operating income, is expected to increase nearly 1% from $2 billion recorded in fiscal 2017. This will continue to reflect expense leverage while supporting ongoing investments in strategic initiatives. Abercrombie also expects average shares outstanding of about 71 million.
Furthermore, the company expects core tax rate to be in the mid-to-high 20s range, driven by the recently enacted tax reform. However, including nearly $10 million of discrete non-cash income tax charges related to share-based compensation accounting standards, it expects the effective tax rate in the mid-to-high 30s range.
For the first quarter, the company estimates effective tax rate of low-double digits to low teens, including $9 million from the aforementioned non-cash income tax charges.
Additionally, the company envisions capital expenditures to be roughly $130 million for fiscal 2018. This will include $85 million for store updates and new stores and nearly $45 million for direct-to-consumer and omni-channel investments, information technology and other projects.
Looking for Other Solid Picks, Check These
Investors can count upon some other stocks in the same industry like Foot Locker Inc. (FL - Free Report) , The Gap, Inc. (GPS - Free Report) and Nordstrom, Inc. (JWN - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Foot Locker, with a long-term earnings growth rate of 5%, has reported positive earnings surprise in the last two quarters.
Gap, with a long-term earnings growth rate of 8%, has delivered an average positive earnings surprise of 11.1% in the trailing four quarters.
Nordstrom, with a long-term earnings growth rate of 6%, has come up with an average positive earnings surprise of 16.8% in the trailing four quarters.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>