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Abercrombie & Fitch (ANF) Q3 Earnings Beat, Digital Sales Up
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Abercrombie & Fitch Co. (ANF - Free Report) posted third-quarter fiscal 2021 results, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. Robust back-to-school season contributed to the company’s upbeat performance. Evidently, lower promotions and markdowns, efficient expense management, and strategic investments across marketing, technology and fulfillment aided the results.
Despite a third-quarter beat, shares of this specialty retailer of apparel and accessories fell more than 12% during the trading session on Nov 23. Clearly, Abercrombie & Fitch is not entirely immune to the ongoing supply chain bottlenecks, including production and delivery delays as well as higher freight costs. Well, the company has been trying all means to navigate through these challenges.
Shares of this Zacks Rank #3 (Hold) company have gained 8.1% in the past six months against the industry's decline of 6.6%.
Overall Sales & Earnings Picture
Abercrombie & Fitch delivered adjusted earnings of 86 cents a share in third-quarter fiscal 2021 that comfortably surpassed the Zacks Consensus Estimate of 68 cents and increased from 76 cents earned in the year-ago quarter. The year-over-year increase in the bottom line can be attributed to higher net sales.
Net sales of $905.2 million advanced 10% year over year and exceeded the Zacks Consensus Estimate of $894.4 million. Digital net sales rose 8% to $413 million, and represented 46% of total sales. We note that store sales jumped 11% from the year-ago period. Better customer engagement, digital and omni-channel enhancements, and higher average unit retail or AUR across brands and channels aided the top-line performance.
Abercrombie & Fitch Company Price, Consensus and EPS Surprise
Sales were strong in the United States, up 17% year over year to $654.9 million. However, International sales declined 4% to $250.3 million owing to lower sales in the EMEA and APAC regions.
Sales in the EMEA region fell 6% to $179.2 million. Business remained strong in the U.K., thanks to favorable customer response for products. This was offset by continued COVID-induced restrictions and impacts across key Western European countries, including prime markets, Germany and France. In APAC, sales were down 12% to $38.2 million because of traffic headwinds due to coronavirus cases inside China and Hong Kong and slow vaccination progress in Japan.
Brand wise, net sales at Hollister advanced 10% year over year to $522.3 million, while at Abercrombie, the metric increased 12% to $382.8 million.
Margins
Gross profit increased 10% year over year to $576.2 million, however, gross margin contracted 30 basis points to 63.7%. The gross profit rate decline was due to roughly 300 basis points of higher average unit cost from freight inflation and efforts to mitigate supply chain challenges, offset by higher AUR on lower promotions.
Operating expense, excluding other operating income, net, rose 8% from the year-ago period. This increase reflects higher marketing expenses and payroll and a decrease in store occupancy. As a percentage of sales, operating expenses decreased to 55.8% from 56.8% last year. Adjusted operating income totaled $79.5 million compared with $64.9 million in the year-ago quarter. We note that operating margin expanded 90 basis points to 8.8%.
Other Financials
Abercrombie & Fitch ended the quarter with cash and cash equivalents of $865.6 million, long-term gross borrowings under the senior secured notes of $308 million, and stockholders’ equity of $918.3 million. Net cash provided by operating activities was $131.3 million for the year-to-date period ended Oct 30, 2021.
Management continues to anticipate capital expenditures of approximately $100 million for fiscal 2021. About 50% of the capital spending is expected to be utilized for investments in digital and technology and the other half in real estate and maintenance items.
During the quarter under review, the company repurchased about 2.7 million shares for $100 million. The company’s board of directors approved a new share buyback program of up to $500 million, replacing the February 2021 share repurchase program of 10 million shares, which had approximately 3.9 million shares remaining. In the final quarter, the company intends to repurchase at least $100 million worth of shares.
Store Update
In the third quarter, the company opened five stores and closed three locations. This brings the total both year-to-date store openings and store closures to 23. As of Oct 30, 2021, the company’s total store base was 735, including 536 stores in the United States and 199 stores internationally.
Outlook
For the fourth quarter, management envisions net sales to be up 3-5% from 2019 level of approximately $1.185 billion. It expects the United States to continue to outperform EMEA and APAC regions.
Abercrombie & Fitch expects gross profit rate to be around flat to the 2019 level of 58.2%. The guidance takes into account an expected adverse impact of about $75 million of freight cost pressure due to increasing ocean and air rates as well as higher air deliveries. Nonetheless, given positive customer response to holiday, the company remains committed to lower markdowns and promotions to improve AUR to offset this headwind.
The company anticipates operating expense, excluding other operating income, to be up low to mid-single digits to 2019 adjusted level of $565 million.
Considering above expectations, management guided operating margin in the band of 9-10% for the current fiscal year — the highest since fiscal 2008.
Boot Barn Holdings, the lifestyle retailer of western and work-related footwear, apparel and accessories, sports a Zacks Rank #1 (Strong Buy). Shares of the company have jumped 75.7% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and earnings per share (EPS) suggests growth of 54.4% and 183.3%, respectively, from the year-ago period. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average.
The Children's Place, a pure-play children’s specialty apparel retailer, carries a Zacks Rank #1. The company registered an earnings surprise of 19.6% in the last reported quarter. Shares of the company have jumped 9.7% in the past six months.
The Zacks Consensus Estimate for The Children's Place’s current financial year sales and EPS suggests growth of 27.4% and 464.9%, respectively, from the year-ago period. PLCE has an expected EPS growth rate of 8% for three-five years.
Tractor Supply Company, a rural lifestyle retailer in the United States, flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of the company have jumped 25.5% in the past six months.
The Zacks Consensus Estimate for Tractor Supply Company’s current financial year sales and EPS suggests growth of 19% and 23.9%, respectively, from the year-ago period. TSCO has an expected EPS growth rate of 9.6% for three-five years.
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Abercrombie & Fitch (ANF) Q3 Earnings Beat, Digital Sales Up
Abercrombie & Fitch Co. (ANF - Free Report) posted third-quarter fiscal 2021 results, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. Robust back-to-school season contributed to the company’s upbeat performance. Evidently, lower promotions and markdowns, efficient expense management, and strategic investments across marketing, technology and fulfillment aided the results.
Despite a third-quarter beat, shares of this specialty retailer of apparel and accessories fell more than 12% during the trading session on Nov 23. Clearly, Abercrombie & Fitch is not entirely immune to the ongoing supply chain bottlenecks, including production and delivery delays as well as higher freight costs. Well, the company has been trying all means to navigate through these challenges.
Shares of this Zacks Rank #3 (Hold) company have gained 8.1% in the past six months against the industry's decline of 6.6%.
Overall Sales & Earnings Picture
Abercrombie & Fitch delivered adjusted earnings of 86 cents a share in third-quarter fiscal 2021 that comfortably surpassed the Zacks Consensus Estimate of 68 cents and increased from 76 cents earned in the year-ago quarter. The year-over-year increase in the bottom line can be attributed to higher net sales.
Net sales of $905.2 million advanced 10% year over year and exceeded the Zacks Consensus Estimate of $894.4 million. Digital net sales rose 8% to $413 million, and represented 46% of total sales. We note that store sales jumped 11% from the year-ago period. Better customer engagement, digital and omni-channel enhancements, and higher average unit retail or AUR across brands and channels aided the top-line performance.
Abercrombie & Fitch Company Price, Consensus and EPS Surprise
Abercrombie & Fitch Company price-consensus-eps-surprise-chart | Abercrombie & Fitch Company Quote
Sales By Region and Brands
Sales were strong in the United States, up 17% year over year to $654.9 million. However, International sales declined 4% to $250.3 million owing to lower sales in the EMEA and APAC regions.
Sales in the EMEA region fell 6% to $179.2 million. Business remained strong in the U.K., thanks to favorable customer response for products. This was offset by continued COVID-induced restrictions and impacts across key Western European countries, including prime markets, Germany and France. In APAC, sales were down 12% to $38.2 million because of traffic headwinds due to coronavirus cases inside China and Hong Kong and slow vaccination progress in Japan.
Brand wise, net sales at Hollister advanced 10% year over year to $522.3 million, while at Abercrombie, the metric increased 12% to $382.8 million.
Margins
Gross profit increased 10% year over year to $576.2 million, however, gross margin contracted 30 basis points to 63.7%. The gross profit rate decline was due to roughly 300 basis points of higher average unit cost from freight inflation and efforts to mitigate supply chain challenges, offset by higher AUR on lower promotions.
Operating expense, excluding other operating income, net, rose 8% from the year-ago period. This increase reflects higher marketing expenses and payroll and a decrease in store occupancy. As a percentage of sales, operating expenses decreased to 55.8% from 56.8% last year. Adjusted operating income totaled $79.5 million compared with $64.9 million in the year-ago quarter. We note that operating margin expanded 90 basis points to 8.8%.
Other Financials
Abercrombie & Fitch ended the quarter with cash and cash equivalents of $865.6 million, long-term gross borrowings under the senior secured notes of $308 million, and stockholders’ equity of $918.3 million. Net cash provided by operating activities was $131.3 million for the year-to-date period ended Oct 30, 2021.
Management continues to anticipate capital expenditures of approximately $100 million for fiscal 2021. About 50% of the capital spending is expected to be utilized for investments in digital and technology and the other half in real estate and maintenance items.
During the quarter under review, the company repurchased about 2.7 million shares for $100 million. The company’s board of directors approved a new share buyback program of up to $500 million, replacing the February 2021 share repurchase program of 10 million shares, which had approximately 3.9 million shares remaining. In the final quarter, the company intends to repurchase at least $100 million worth of shares.
Store Update
In the third quarter, the company opened five stores and closed three locations. This brings the total both year-to-date store openings and store closures to 23. As of Oct 30, 2021, the company’s total store base was 735, including 536 stores in the United States and 199 stores internationally.
Outlook
For the fourth quarter, management envisions net sales to be up 3-5% from 2019 level of approximately $1.185 billion. It expects the United States to continue to outperform EMEA and APAC regions.
Abercrombie & Fitch expects gross profit rate to be around flat to the 2019 level of 58.2%. The guidance takes into account an expected adverse impact of about $75 million of freight cost pressure due to increasing ocean and air rates as well as higher air deliveries. Nonetheless, given positive customer response to holiday, the company remains committed to lower markdowns and promotions to improve AUR to offset this headwind.
The company anticipates operating expense, excluding other operating income, to be up low to mid-single digits to 2019 adjusted level of $565 million.
Considering above expectations, management guided operating margin in the band of 9-10% for the current fiscal year — the highest since fiscal 2008.
3 Stocks to Watch
Some better-ranked stocks include, Boot Barn Holdings (BOOT - Free Report) , The Children's Place (PLCE - Free Report) and Tractor Supply Company (TSCO - Free Report) .
Boot Barn Holdings, the lifestyle retailer of western and work-related footwear, apparel and accessories, sports a Zacks Rank #1 (Strong Buy). Shares of the company have jumped 75.7% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and earnings per share (EPS) suggests growth of 54.4% and 183.3%, respectively, from the year-ago period. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average.
The Children's Place, a pure-play children’s specialty apparel retailer, carries a Zacks Rank #1. The company registered an earnings surprise of 19.6% in the last reported quarter. Shares of the company have jumped 9.7% in the past six months.
The Zacks Consensus Estimate for The Children's Place’s current financial year sales and EPS suggests growth of 27.4% and 464.9%, respectively, from the year-ago period. PLCE has an expected EPS growth rate of 8% for three-five years.
Tractor Supply Company, a rural lifestyle retailer in the United States, flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of the company have jumped 25.5% in the past six months.
The Zacks Consensus Estimate for Tractor Supply Company’s current financial year sales and EPS suggests growth of 19% and 23.9%, respectively, from the year-ago period. TSCO has an expected EPS growth rate of 9.6% for three-five years.