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Abercrombie & Fitch (ANF) Issues Upbeat Q4 View, Stock Up

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Shares of Abercrombie & Fitch Co. (ANF - Free Report) jumped 7% after the close of the trading session on Jan 11, driven by its updated fourth-quarter fiscal 2020 view. This move comes after it witnessed solid performance in fiscal fourth quarter to date period, which is inclusive of the holiday season sales.

Further, strength in online sales driven by enhanced omnichannel capabilities including curbside and ship from store services, improved traffic across websites and apps along with higher conversion and new customer acquisition act as key growth drivers. On the flip side, in-store sales remain weak due to limited store hours, restriction on store capacity along with store closures in some parts of EMEA and North America.

However, the company noted that it is well-placed for 2021 on the back of strong financial position and robust product portfolio. Driven by these, management revised its fourth-quarter fiscal 2020 guidance, which seems encouraging. It now anticipates net sales to decline 5-7%, which reflects an improvement from a decline of 5-10% guided earlier.

Moreover, gross margin is envisioned to expand atleast 130 basis points (bps) driven by lower promotions and higher markdowns. Prior to this, gross margin was expected to be flat to up slightly. Apart from these, adjusted operating costs is projected to decline atleast 2% as compared to earlier guided view of up 1-2%. Lower cost can be attributable to store closures and recognition of rent abatements.

That said, it remains focused on better managing its inventories and expenses in a bid to stay afloat amid this tough economic environment. Keeping in these lines, prudent expense management strategies like occupancy cost reduction through store closures and right-sizing are likely to aid fiscal fourth quarter results. As part of its store optimization plans, the company plans to close four European flagship locations, before their natural lease expirations. Markedly, the Dusseldorf flagship store was shuttered during the third quarter, while the London, Munich and Paris flagships will close by the end of January 2021.

We note that this Zacks Rank #3 (Hold) stock has skyrocketed 133.6% in the past six months, outperforming the industry’s growth of 119.5%.

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