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Abercrombie & Fitch Co. (ANF - Free Report) posted mixed fourth-quarter fiscal 2022 results, wherein the bottom line missed the Zacks Consensus Estimate and declined year over year. Meanwhile, the top line beat the same and improved year over year. Despite significant inflation and global macroeconomic disruption, results gained from the continued momentum in the Abercrombie brand and sequential improvement in the Hollister brand.
Going into 2023, management remains optimistic about consumer demand and inventory levels. The company expects to witness net product cost benefits in 2023, driven by controlled expenses and balanced cash flow. Also, it remains on track with its 2025 Always Forward Plan.
Sales & Earnings Picture
Abercrombie reported adjusted earnings of 81 cents per share in the fourth quarter, whereas the Zacks Consensus Estimate was pegged at 85 cents. Our estimate for the bottom line was 78 cents a share. Fourth-quarter earnings reflected a significant decline of 29% from the year-ago period’s $1.14.
Net sales of $1,200 million rose 3% year over year and surpassed the Zacks Consensus Estimate of $1,180 million. Net sales grew 5% on a constant-currency basis. Our estimate for the top line was $1,173.3 million. This was mainly driven by better inventory to meet demand during the peak holiday period.
Sales by Region and Brands
Sales were strong in the United States, up 9% year over year to $920.5 million. International sales declined 13% year over year to $279.3 million. Sales in the EMEA fell 14% to $195.3 million. In APAC, sales declined 21% to $36.4 million. Other sales grew 1% to $47.6 million.
Brand-wise, net sales at Hollister declined 4% year over year to $639.4 million, while at Abercrombie, sales advanced 14% to $560.4 million. Our estimates for Hollister and Abercrombie sales were $663.6 million and $509.7 million, respectively.
Margins
The gross margin contracted 260 bps to 55.7%. The decline can be attributed to 160 bps of higher product costs, elevated cotton costs and inventory reserves, which more than offset reduced freight costs.
Operating expenses, excluding other operating income, were down year over year. Increased inflation and digital fulfillment expenses were offset by lower marketing and incentive-based compensation.
As a percentage of sales, operating expenses of 48.3% contracted 190 bps from 50.2% in the prior-year quarter. The adjusted operating income was $92 million compared with $100 million in the year-ago period.
Abercrombie & Fitch Company Price, Consensus and EPS Surprise
Abercrombie ended the reported quarter with cash and cash equivalents of $518 million, long-term net borrowings of $296.9 million, and stockholders’ equity of $694.8 million, excluding non-controlling interests.
The company had liquidity of $900 million at the end of the fiscal fourth quarter, which included cash and equivalents, and borrowing available under the ABL Facility. Net cash used for operating activities was $2 million as of Jan 28, 2023.
In the quarter under review, the company did not repurchase any shares. As of Jan 28, 2023, it repurchased 4.8 million shares for about $126 million. It has $232 million remaining under its share repurchase authorization announced in November 2021.
Store Update
In the fiscal fourth quarter, the company opened 28 stores, including 17 Hollister and 11 Abercrombie stores. It closed 11 Hollister and six Abercrombie stores. As of Jan 28, 2023, its total store base was 762, including 560 stores in the United States and 202 stores internationally.
Outlook
For the first quarter of fiscal 2023, management envisions net sales to be flat year over year at $813 million. The company anticipates the operating margin between flat to 2% compared with the year-ago quarter’s loss of 1% due to lower freight and raw material costs, partly offset by inflation and increased operating expenses to support investment for the 2025 Always Forward Plan initiatives. Also, the tax rate is likely to remain volatile in the said quarter due to expected low-income levels.
For fiscal 2023, ANF expects net sales growth of 1-3% from the year-ago period’s reported figure of $3.7 billion. Abercrombie is likely to continue to outperform the Hollister brand, while the U.S. region is expected to continue to outperform International. Management also anticipates sales growth to be weighted to the second half of the year, driven by the inclusion of a 53rd week for reporting purposes, along with store expansion. The 53rd week is estimated to contribute $45 million to sales in 2023.
Abercrombie expects an operating margin of 4-5%, including gains of 200 bps from reduced freight and raw material costs, somewhat offset by inflation and increased operating expense investment for the 2025 Always Forward Plan initiatives. The company expects a capital expenditure of $160 million and a tax rate in the mid-40s range.
Image Source: Zacks Investment Research
Shares of this Zacks Rank #2 (Buy) company have gained 27.8% in the past three months compared with the industry's growth of 3.4%.
Urban Outfitters, a leading lifestyle product and services company, currently carries a Zacks Rank #2. Its expected EPS growth rate for three to five years is 18%.
The Zacks Consensus Estimate for Urban Outfitters’ current financial-year revenues suggests growth of 5% from the year-ago reported figure.
Arhaus, which operates as a lifestyle brand and premium retailer in the home furnishing market, carries a Zacks Rank #2 at present. Its expected EPS growth rate for three to five years is 16.1%.
The Zacks Consensus Estimate for Arhaus’ revenues and EPS suggests growth of 54% and 26.1%, respectively, from the year-ago reported figures. Arhaus has a trailing four-quarter earnings surprise of 112%, on average.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank of 2. AEO delivered an earnings surprise of 82.6% in the last reported quarter.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year sales and EPS suggests growth of 1.3% and 58.9%, respectively, from the year-ago reported figures.
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Abercrombie (ANF) Q4 Earnings Miss, Sales Beat Estimates
Abercrombie & Fitch Co. (ANF - Free Report) posted mixed fourth-quarter fiscal 2022 results, wherein the bottom line missed the Zacks Consensus Estimate and declined year over year. Meanwhile, the top line beat the same and improved year over year. Despite significant inflation and global macroeconomic disruption, results gained from the continued momentum in the Abercrombie brand and sequential improvement in the Hollister brand.
Going into 2023, management remains optimistic about consumer demand and inventory levels. The company expects to witness net product cost benefits in 2023, driven by controlled expenses and balanced cash flow. Also, it remains on track with its 2025 Always Forward Plan.
Sales & Earnings Picture
Abercrombie reported adjusted earnings of 81 cents per share in the fourth quarter, whereas the Zacks Consensus Estimate was pegged at 85 cents. Our estimate for the bottom line was 78 cents a share. Fourth-quarter earnings reflected a significant decline of 29% from the year-ago period’s $1.14.
Net sales of $1,200 million rose 3% year over year and surpassed the Zacks Consensus Estimate of $1,180 million. Net sales grew 5% on a constant-currency basis. Our estimate for the top line was $1,173.3 million. This was mainly driven by better inventory to meet demand during the peak holiday period.
Sales by Region and Brands
Sales were strong in the United States, up 9% year over year to $920.5 million. International sales declined 13% year over year to $279.3 million. Sales in the EMEA fell 14% to $195.3 million. In APAC, sales declined 21% to $36.4 million. Other sales grew 1% to $47.6 million.
Brand-wise, net sales at Hollister declined 4% year over year to $639.4 million, while at Abercrombie, sales advanced 14% to $560.4 million. Our estimates for Hollister and Abercrombie sales were $663.6 million and $509.7 million, respectively.
Margins
The gross margin contracted 260 bps to 55.7%. The decline can be attributed to 160 bps of higher product costs, elevated cotton costs and inventory reserves, which more than offset reduced freight costs.
Operating expenses, excluding other operating income, were down year over year. Increased inflation and digital fulfillment expenses were offset by lower marketing and incentive-based compensation.
As a percentage of sales, operating expenses of 48.3% contracted 190 bps from 50.2% in the prior-year quarter. The adjusted operating income was $92 million compared with $100 million in the year-ago period.
Abercrombie & Fitch Company Price, Consensus and EPS Surprise
Abercrombie & Fitch Company price-consensus-eps-surprise-chart | Abercrombie & Fitch Company Quote
Other Financials
Abercrombie ended the reported quarter with cash and cash equivalents of $518 million, long-term net borrowings of $296.9 million, and stockholders’ equity of $694.8 million, excluding non-controlling interests.
The company had liquidity of $900 million at the end of the fiscal fourth quarter, which included cash and equivalents, and borrowing available under the ABL Facility. Net cash used for operating activities was $2 million as of Jan 28, 2023.
In the quarter under review, the company did not repurchase any shares. As of Jan 28, 2023, it repurchased 4.8 million shares for about $126 million. It has $232 million remaining under its share repurchase authorization announced in November 2021.
Store Update
In the fiscal fourth quarter, the company opened 28 stores, including 17 Hollister and 11 Abercrombie stores. It closed 11 Hollister and six Abercrombie stores. As of Jan 28, 2023, its total store base was 762, including 560 stores in the United States and 202 stores internationally.
Outlook
For the first quarter of fiscal 2023, management envisions net sales to be flat year over year at $813 million. The company anticipates the operating margin between flat to 2% compared with the year-ago quarter’s loss of 1% due to lower freight and raw material costs, partly offset by inflation and increased operating expenses to support investment for the 2025 Always Forward Plan initiatives. Also, the tax rate is likely to remain volatile in the said quarter due to expected low-income levels.
For fiscal 2023, ANF expects net sales growth of 1-3% from the year-ago period’s reported figure of $3.7 billion. Abercrombie is likely to continue to outperform the Hollister brand, while the U.S. region is expected to continue to outperform International. Management also anticipates sales growth to be weighted to the second half of the year, driven by the inclusion of a 53rd week for reporting purposes, along with store expansion. The 53rd week is estimated to contribute $45 million to sales in 2023.
Abercrombie expects an operating margin of 4-5%, including gains of 200 bps from reduced freight and raw material costs, somewhat offset by inflation and increased operating expense investment for the 2025 Always Forward Plan initiatives. The company expects a capital expenditure of $160 million and a tax rate in the mid-40s range.
Image Source: Zacks Investment Research
Shares of this Zacks Rank #2 (Buy) company have gained 27.8% in the past three months compared with the industry's growth of 3.4%.
Other Stocks to Consider
Here are three other top-ranked stocks to consider — Urban Outfitters (URBN - Free Report) , Arhaus (ARHS - Free Report) and American Eagle Outfitters (AEO - Free Report) .
Urban Outfitters, a leading lifestyle product and services company, currently carries a Zacks Rank #2. Its expected EPS growth rate for three to five years is 18%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Urban Outfitters’ current financial-year revenues suggests growth of 5% from the year-ago reported figure.
Arhaus, which operates as a lifestyle brand and premium retailer in the home furnishing market, carries a Zacks Rank #2 at present. Its expected EPS growth rate for three to five years is 16.1%.
The Zacks Consensus Estimate for Arhaus’ revenues and EPS suggests growth of 54% and 26.1%, respectively, from the year-ago reported figures. Arhaus has a trailing four-quarter earnings surprise of 112%, on average.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank of 2. AEO delivered an earnings surprise of 82.6% in the last reported quarter.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year sales and EPS suggests growth of 1.3% and 58.9%, respectively, from the year-ago reported figures.