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Abercrombie (ANF) Reports Q2 Loss, Provides Dull Outlook
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Shares of Abercrombie & Fitch Co. (ANF - Free Report) plunged more than 12% before the start of the trading session on Aug 25, following the sluggish second-quarter fiscal 2022, wherein the top and bottom lines fell year over year.
Results were hurt by the current challenging environment and weakness in its Hollister brand, stemming from inflation and the shift in consumer preference, which further led to lower-than-expected conversion and basket size. That said, this Zacks Rank #3 (Hold) company remains on track with its 2025 Always Forward plan.
Going ahead, management expects the headwinds to persist. As a result, it has been making efforts to adjust receipts across brands, improve inventory levels and monitor sales volumes.
Although year-over-year inventory growth peaked in the fiscal second quarter, it is likely to recover in the second half of fiscal 2022. In August, the company witnessed a steady improvement in the weekly sales trend, the uncertain environment is predicted to linger in the back half of fiscal 2022. It also revised its fiscal 2022 view and issued the third-quarter guidance, which seem drab.
Shares of ANF have lost 22.9% in the past three months compared with the industry's decline of 1.4%.
Image Source: Zacks Investment Research
Sales & Earnings Picture
Abercrombie has reported an adjusted loss of 30 cents per share in second-quarter fiscal 2022 that missed the Zacks Consensus Estimate of earnings of 23 cents and reflected a significant decline from earnings of $1.70 in the year-ago quarter.
Net sales of $805.1 million declined 7% year over year and lagged the Zacks Consensus Estimate of $848 million. This marked the highest sales since 2015. The metric also fell 4% on a constant currency basis. Also, the company has noted that average unit retail (AUR) improved for the ninth consecutive quarter.
Sales By Region and Brands
Sales were strong in the United States, down 4% year over year to $578.1 million. International sales declined 14% year over year to $227 million. Sales in EMEA fell 13% year over year to $166.8 million. In APAC, sales declined 33% to $27.8 million.
Brand-wise, net sales at Hollister declined 15% year over year to $436.9 million, while at Abercrombie, sales advanced 5% to $368.2 million.
Margins
The gross profit declined 17.3% year over year to $465.9 million. The gross margin contracted 730 bps to 57.9%. The decline can be attributed to 750 bps of higher product costs and 30 bps of unfavorable currency impact, partly offset by AUR growth.
Operating expenses, excluding other operating income, increased 4% from the year-ago period. The year-over-year increase was mainly due to inflation and higher digital fulfillment expenses, which somewhat offset lower incentive-based compensation. As a percentage of sales, operating expenses of 58% rose 590 bps from 52.1% in the prior-year quarter.
The adjusted operating loss was $21 million against an operating income of $116 million in the year-ago quarter.
Other Financials
Abercrombie has ended second-quarter fiscal 2022 with cash and cash equivalents of $370 million, long-term net borrowings of $308 million, and stockholders’ equity of $661.8 million, excluding non-controlling interests. The company had liquidity of $0.7 billion at the end of the fiscal second quarter and available borrowings of $359 million under the ABL Facility. Net cash used for operating activities was $260 million as of Jul 30, 2022.
In the quarter under review, the company repurchased 1 million shares for $18 million. It has $240 million remaining under its share repurchase authorization announced in November 2021.
Store Update
In the fiscal second quarter, the company opened eight stores, including seven Hollister and one Abercrombie store. The company closed two Hollister stores. As of Jul 30, 2022, its total store base was 734, including 530 stores in the United States and 204 stores internationally.
Abercrombie & Fitch Company Price, Consensus and EPS Surprise
For third-quarter fiscal 2022, management envisions a net sales decline in the high-single-digits from the third-quarter fiscal 2021 reported level of $905 million. The sales view includes a 220-bps impact from adverse currency rates. The company anticipates operating margin to be break-even in the fiscal third quarter mainly due to dismal sales and lower AURs.
For fiscal 2022, the company anticipates a net sales decline in the mid-single digits compared with the prior mentioned flat to up 2%, whereas it reported $3.7 billion in fiscal 2021. The sales outlook assumes a negative impact of 200 bps from foreign currency.
The company expects an operating margin of 1-3%, which reflects a decline from the prior mentioned 5-6%. This can be attributable to lower AURs, which are likely to be partly offset by reduced expenses, adjusted inventory receipt levels and cadence by region in response to current market forces.
Capital expenditure is forecast to be $150 million.
The Zacks Consensus Estimate for Dollar General’s current financial-year revenues and EPS suggests growth of 10% and 13.4%, respectively, from the year-ago reported figure. Dollar General has a trailing four-quarter earnings surprise of 2.8%, on average.
Costco, which is engaged in the operation of membership warehouses, carries a Zacks Rank #2. COST has an expected EPS growth rate of 9.2% for three to five years.
The Zacks Consensus Estimate for Costco’s current financial-year sales and EPS suggests growth of 15.4% and 18.2%, respectively, from the year-ago period. COST has a trailing four-quarter earnings surprise of 9.7%, on average.
Dollar Tree operates discount variety retail stores. The stock currently carries a Zacks Rank #2. DLTR has an expected EPS growth rate of 15.5% for three to five years.
The Zacks Consensus Estimate for Dollar Tree’s current financial-year revenues and EPS suggests growth of 6.7% and 40.7%, respectively, from the year-ago reported figure. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average.
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Abercrombie (ANF) Reports Q2 Loss, Provides Dull Outlook
Shares of Abercrombie & Fitch Co. (ANF - Free Report) plunged more than 12% before the start of the trading session on Aug 25, following the sluggish second-quarter fiscal 2022, wherein the top and bottom lines fell year over year.
Results were hurt by the current challenging environment and weakness in its Hollister brand, stemming from inflation and the shift in consumer preference, which further led to lower-than-expected conversion and basket size. That said, this Zacks Rank #3 (Hold) company remains on track with its 2025 Always Forward plan.
Going ahead, management expects the headwinds to persist. As a result, it has been making efforts to adjust receipts across brands, improve inventory levels and monitor sales volumes.
Although year-over-year inventory growth peaked in the fiscal second quarter, it is likely to recover in the second half of fiscal 2022. In August, the company witnessed a steady improvement in the weekly sales trend, the uncertain environment is predicted to linger in the back half of fiscal 2022. It also revised its fiscal 2022 view and issued the third-quarter guidance, which seem drab.
Shares of ANF have lost 22.9% in the past three months compared with the industry's decline of 1.4%.
Image Source: Zacks Investment Research
Sales & Earnings Picture
Abercrombie has reported an adjusted loss of 30 cents per share in second-quarter fiscal 2022 that missed the Zacks Consensus Estimate of earnings of 23 cents and reflected a significant decline from earnings of $1.70 in the year-ago quarter.
Net sales of $805.1 million declined 7% year over year and lagged the Zacks Consensus Estimate of $848 million. This marked the highest sales since 2015. The metric also fell 4% on a constant currency basis. Also, the company has noted that average unit retail (AUR) improved for the ninth consecutive quarter.
Sales By Region and Brands
Sales were strong in the United States, down 4% year over year to $578.1 million. International sales declined 14% year over year to $227 million. Sales in EMEA fell 13% year over year to $166.8 million. In APAC, sales declined 33% to $27.8 million.
Brand-wise, net sales at Hollister declined 15% year over year to $436.9 million, while at Abercrombie, sales advanced 5% to $368.2 million.
Margins
The gross profit declined 17.3% year over year to $465.9 million. The gross margin contracted 730 bps to 57.9%. The decline can be attributed to 750 bps of higher product costs and 30 bps of unfavorable currency impact, partly offset by AUR growth.
Operating expenses, excluding other operating income, increased 4% from the year-ago period. The year-over-year increase was mainly due to inflation and higher digital fulfillment expenses, which somewhat offset lower incentive-based compensation. As a percentage of sales, operating expenses of 58% rose 590 bps from 52.1% in the prior-year quarter.
The adjusted operating loss was $21 million against an operating income of $116 million in the year-ago quarter.
Other Financials
Abercrombie has ended second-quarter fiscal 2022 with cash and cash equivalents of $370 million, long-term net borrowings of $308 million, and stockholders’ equity of $661.8 million, excluding non-controlling interests. The company had liquidity of $0.7 billion at the end of the fiscal second quarter and available borrowings of $359 million under the ABL Facility. Net cash used for operating activities was $260 million as of Jul 30, 2022.
In the quarter under review, the company repurchased 1 million shares for $18 million. It has $240 million remaining under its share repurchase authorization announced in November 2021.
Store Update
In the fiscal second quarter, the company opened eight stores, including seven Hollister and one Abercrombie store. The company closed two Hollister stores. As of Jul 30, 2022, its total store base was 734, including 530 stores in the United States and 204 stores internationally.
Abercrombie & Fitch Company Price, Consensus and EPS Surprise
Abercrombie & Fitch Company price-consensus-eps-surprise-chart | Abercrombie & Fitch Company Quote
Outlook
For third-quarter fiscal 2022, management envisions a net sales decline in the high-single-digits from the third-quarter fiscal 2021 reported level of $905 million. The sales view includes a 220-bps impact from adverse currency rates. The company anticipates operating margin to be break-even in the fiscal third quarter mainly due to dismal sales and lower AURs.
For fiscal 2022, the company anticipates a net sales decline in the mid-single digits compared with the prior mentioned flat to up 2%, whereas it reported $3.7 billion in fiscal 2021. The sales outlook assumes a negative impact of 200 bps from foreign currency.
The company expects an operating margin of 1-3%, which reflects a decline from the prior mentioned 5-6%. This can be attributable to lower AURs, which are likely to be partly offset by reduced expenses, adjusted inventory receipt levels and cadence by region in response to current market forces.
Capital expenditure is forecast to be $150 million.
Stocks to Consider
Here are three better-ranked stocks to consider — Dollar General (DG - Free Report) , Costco (COST - Free Report) and Dollar Tree (DLTR - Free Report) .
Dollar General, a discount retailer, currently carries a Zacks Rank #2 (Buy). DG has an expected EPS growth rate of 12.8% for three to five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Dollar General’s current financial-year revenues and EPS suggests growth of 10% and 13.4%, respectively, from the year-ago reported figure. Dollar General has a trailing four-quarter earnings surprise of 2.8%, on average.
Costco, which is engaged in the operation of membership warehouses, carries a Zacks Rank #2. COST has an expected EPS growth rate of 9.2% for three to five years.
The Zacks Consensus Estimate for Costco’s current financial-year sales and EPS suggests growth of 15.4% and 18.2%, respectively, from the year-ago period. COST has a trailing four-quarter earnings surprise of 9.7%, on average.
Dollar Tree operates discount variety retail stores. The stock currently carries a Zacks Rank #2. DLTR has an expected EPS growth rate of 15.5% for three to five years.
The Zacks Consensus Estimate for Dollar Tree’s current financial-year revenues and EPS suggests growth of 6.7% and 40.7%, respectively, from the year-ago reported figure. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average.