A month has gone by since the last earnings report for Abercrombie & Fitch (
ANF Quick Quote ANF - Free Report) . Shares have added about 24.1% 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 the most recent earnings report in order to get a better handle on the important drivers.
Abercrombie & Fitch Beats Q4 Earnings & Sales Estimates
Abercrombie & Fitch came out with its fourth-quarter fiscal 2020 results, wherein both top and bottom lines came ahead of the Zacks Consensus Estimate. Results gained from strategic investments in omnichannel capabilities, marketing, data and analytics along with an increased focus on EMEA and APAC regions. However, management continued to witness adverse impacts of the COVID-19 pandemic that put pressure on the top line.
Going ahead, management noted that the first quarter of fiscal 2021 started on a solid note, driven by improved products, better marketing efforts, digital strength and a strong liquidity position. Also, it is on track with plans to rationalize stores, optimize square footage as well as digital transformation and market share gains. Q4 Highlights
Abercrombie delivered adjusted earnings of $1.50 per share in the fiscal fourth quarter, up 14.5% year over year from $1.31 in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $1.20.
Net sales totaled $1,122 million and exceeded the Zacks Consensus Estimate of $1,119 million. However, the top line declined 5% from the year-ago quarter’s figure due to adverse impacts of the COVID-19 pandemic. Digital net sales were strong during the quarter, up 34% year over year to $639 million. Markedly, digital sales reflected robust growth in every month of the quarter. Brand-wise, net sales declined 8% and 2% to $655.4 million and $466.6 million for the Hollister and Abercrombie brands, respectively. From a geographical viewpoint, net sales fell 3% in the United States and 10% in International markets. Margins
Gross margin expanded 230 basis points (bps) to 60.5% gaining from increased average unit retail and reduced average unit costs.
Adjusted operating income totaled $131 million as compared to $125 million in the year-ago quarter. Tight expense management boosted operating income in the reported quarter. Other Financials
Abercrombie ended the quarter with cash and cash equivalents of $1,104.9 million and long-term gross borrowings (under senior secured notes) of $343.9 million. Also, inventories were $404.1 million, down 7% from the prior-year quarter.
For fiscal 2020, net cash provided by operating activities amounted to $405 million. Net cash used for investments amounted to $52 million. Capital expenditures for fiscal 2020 came in at $102 million. We note that the company now plans to resume share repurchase, which was earlier suspended in the wake of the COVID-19 outbreak. Prior to this, it returned nearly $28 million to shareholders in the forms of share repurchases and dividends. As of Jan 30, 2021, roughly 3.2 million shares were available for repurchase under its existing share repurchase authorization, which was approved in June 2019. However, the board, on Feb 19, 2021, has replaced this with a new share repurchase plan of 10 million shares, which brings the total number of shares that can be repurchased to 10 million. That said, the company boasts a liquidity of $1.3 billion as of Jan 30, 2021, compared with a liquidity of $914 million as of Feb 1, 2020. The company’s liquidity comprises cash and equivalents as well as borrowings available under the senior-secured asset-based revolving credit facility of nearly $215 million. Store Update
As part of its store optimization plans, Abercrombie plans to reposition larger format flagship locations to smaller omnichannel enabled stores. Progressing on these efforts, the company closed eight European flagship locations in fiscal 2020, bringing the total count of flagship stores to seven. Additionally, 129 non-flagship stores were shut down in the aforementioned period. Meanwhile, it opened 15 stores, revamped four and right-sized six locations.
As of Jan 30, 2021, the company’s total store base included 537 stores in the United States and 198 stores internationally. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 8.82% due to these changes.
Currently, Abercrombie has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly 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.