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Abercrombie (ANF) Up 23.5% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Abercrombie & Fitch (ANF - Free Report) . Shares have added about 23.5% 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 catalysts.
Abercrombie Tops on Q3 Earnings & Sales Estimates
Abercrombie has reported robust third-quarter fiscal 2023 results, with the top and bottom lines surpassing the Zacks Consensus Estimate and improving year over year. Results have benefited from the exceptional performance at the Abercrombie brand and improvement in the Hollister brand.
The adjusted earnings of $1.83 per share in the fiscal third quarter improved significantly from the 1 cent reported in the prior-year quarter. Moreover, the bottom line surpassed the Zacks Consensus Estimate of $1.14 by a huge margin. The robust earnings performance can be attributed to strong top-line growth, coupled with improved gross and operating margins resulting from strong operating leverage. Higher average unit retail and reduced freight costs mainly aided margins.
Net sales of $1,056.4 million advanced 20% year over year and surpassed the Zacks Consensus Estimate of $978 million. Net sales grew 19% on a constant-currency basis. ANF’s comparable sales improved 16%. The top-line beat was led by substantial growth in the Abercrombie brand, along with momentum in Hollister.
Sales by Region and Brands
Sales were strong in the Americas, up 22% year over year to $867.6 million. Additionally, sales grew 14% to $158 million in the EMEA and advanced 13% to $30.9 million in the APAC. Brand-wise, net sales improved 11% year over year to $508.7 million at Hollister and advanced 30% to $547.7 million at Abercrombie. The Abercrombie brand contributed 52% to the total company sales, while Hollister represented 48% of sales.
Exceptional sales growth at Abercrombie was driven by consistent growth across genders, channels and geographies. This marked the highest fiscal third-quarter sales for the brand in the company’s history. Meanwhile, sales at Hollister benefited from a solid back-to-school season, and assortment and brand evolution amid teen customers. Growth in the Hollister brand was led by the women’s business.
Margins
Abercrombie’s gross margin expanded 570 basis points (bps) year over year to 64.9% in the quarter, driven by improved product acceptance and tight inventory management across brands. The gross margin expansion included a 200-bps gain from reduced freight costs, a 250-bps benefit from AUR growth and a 200-bps gain from lower inventory write-downs. This was partly negated by an 80-bps impact from higher raw material costs.
Operating expenses, excluding other operating losses, increased 8% year over year. Higher incentive-based compensation, inflation, marketing and technology expenses led to the increase. As a percentage of sales, operating expenses of 51.7% declined 560 bps from the prior-year quarter.
The company reported an operating income of $138 million compared with a reported operating income of $18 million and an adjusted operating income of $21 million in the year-ago period. The operating margin of 13.1% expanded 1,110 bps year over year, powered by gross margin expansion and operating expense leverage.
Other Financials
Abercrombie ended the fiscal third quarter with cash and cash equivalents of $649.5 million, long-term net borrowings of $248 million, and stockholders’ equity of $866.1 million, excluding non-controlling interests.
The company had a liquidity of $1 billion at the end of the fiscal third quarter, which included cash and equivalents, and borrowings available under the ABL Facility. Net cash provided by operating activities was $350 million as of Oct 28, 2023.
Outlook
Driven by the robust year-to-date performance and expectations of solid demand trends in the upcoming holiday season, the company raised its sales and operating margin guidance for fiscal 2023. Management envisions year-over-year net sales growth of 12-14% for fiscal 2023, up from prior stated 10% growth. Fiscal 2023 includes a 53rd week, which is estimated to benefit sales by $45 million.
Abercrombie expects an operating margin of 10%, an increase from the earlier stated 8-9%. The revised guidance suggests a year-over-year expansion of 250 bps, driven by reduced freight and raw material costs, and a modest operating expense leverage with sales growth. These gains are expected to more than offset higher expenses resulting from inflation and increased investment for the 2025 Always Forward Plan initiatives. ANF expects a capital expenditure of $160 million and a tax rate in the low 30% range for fiscal 2023. The tax rate replaces the previously mentioned low-to-mid 30% range.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 27.24% due to these changes.
VGM Scores
At this time, Abercrombie has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been 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.
Performance of an Industry Player
Abercrombie belongs to the Zacks Retail - Apparel and Shoes industry. Another stock from the same industry, The Children's Place (PLCE - Free Report) , has gained 14% over the past month. More than a month has passed since the company reported results for the quarter ended October 2023.
The Children's Place reported revenues of $480.23 million in the last reported quarter, representing a year-over-year change of -5.7%. EPS of $3.22 for the same period compares with $3.33 a year ago.
For the current quarter, The Children's Place is expected to post earnings of $0.26 per share, indicating a change of +106.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +25.4% over the last 30 days.
The Children's Place has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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Abercrombie (ANF) Up 23.5% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Abercrombie & Fitch (ANF - Free Report) . Shares have added about 23.5% 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 catalysts.
Abercrombie Tops on Q3 Earnings & Sales Estimates
Abercrombie has reported robust third-quarter fiscal 2023 results, with the top and bottom lines surpassing the Zacks Consensus Estimate and improving year over year. Results have benefited from the exceptional performance at the Abercrombie brand and improvement in the Hollister brand.
The adjusted earnings of $1.83 per share in the fiscal third quarter improved significantly from the 1 cent reported in the prior-year quarter. Moreover, the bottom line surpassed the Zacks Consensus Estimate of $1.14 by a huge margin. The robust earnings performance can be attributed to strong top-line growth, coupled with improved gross and operating margins resulting from strong operating leverage. Higher average unit retail and reduced freight costs mainly aided margins.
Net sales of $1,056.4 million advanced 20% year over year and surpassed the Zacks Consensus Estimate of $978 million. Net sales grew 19% on a constant-currency basis. ANF’s comparable sales improved 16%. The top-line beat was led by substantial growth in the Abercrombie brand, along with momentum in Hollister.
Sales by Region and Brands
Sales were strong in the Americas, up 22% year over year to $867.6 million. Additionally, sales grew 14% to $158 million in the EMEA and advanced 13% to $30.9 million in the APAC. Brand-wise, net sales improved 11% year over year to $508.7 million at Hollister and advanced 30% to $547.7 million at Abercrombie. The Abercrombie brand contributed 52% to the total company sales, while Hollister represented 48% of sales.
Exceptional sales growth at Abercrombie was driven by consistent growth across genders, channels and geographies. This marked the highest fiscal third-quarter sales for the brand in the company’s history. Meanwhile, sales at Hollister benefited from a solid back-to-school season, and assortment and brand evolution amid teen customers. Growth in the Hollister brand was led by the women’s business.
Margins
Abercrombie’s gross margin expanded 570 basis points (bps) year over year to 64.9% in the quarter, driven by improved product acceptance and tight inventory management across brands. The gross margin expansion included a 200-bps gain from reduced freight costs, a 250-bps benefit from AUR growth and a 200-bps gain from lower inventory write-downs. This was partly negated by an 80-bps impact from higher raw material costs.
Operating expenses, excluding other operating losses, increased 8% year over year. Higher incentive-based compensation, inflation, marketing and technology expenses led to the increase. As a percentage of sales, operating expenses of 51.7% declined 560 bps from the prior-year quarter.
The company reported an operating income of $138 million compared with a reported operating income of $18 million and an adjusted operating income of $21 million in the year-ago period. The operating margin of 13.1% expanded 1,110 bps year over year, powered by gross margin expansion and operating expense leverage.
Other Financials
Abercrombie ended the fiscal third quarter with cash and cash equivalents of $649.5 million, long-term net borrowings of $248 million, and stockholders’ equity of $866.1 million, excluding non-controlling interests.
The company had a liquidity of $1 billion at the end of the fiscal third quarter, which included cash and equivalents, and borrowings available under the ABL Facility. Net cash provided by operating activities was $350 million as of Oct 28, 2023.
Outlook
Driven by the robust year-to-date performance and expectations of solid demand trends in the upcoming holiday season, the company raised its sales and operating margin guidance for fiscal 2023. Management envisions year-over-year net sales growth of 12-14% for fiscal 2023, up from prior stated 10% growth. Fiscal 2023 includes a 53rd week, which is estimated to benefit sales by $45 million.
Abercrombie expects an operating margin of 10%, an increase from the earlier stated 8-9%. The revised guidance suggests a year-over-year expansion of 250 bps, driven by reduced freight and raw material costs, and a modest operating expense leverage with sales growth. These gains are expected to more than offset higher expenses resulting from inflation and increased investment for the 2025 Always Forward Plan initiatives. ANF expects a capital expenditure of $160 million and a tax rate in the low 30% range for fiscal 2023. The tax rate replaces the previously mentioned low-to-mid 30% range.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 27.24% due to these changes.
VGM Scores
At this time, Abercrombie has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been 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.
Performance of an Industry Player
Abercrombie belongs to the Zacks Retail - Apparel and Shoes industry. Another stock from the same industry, The Children's Place (PLCE - Free Report) , has gained 14% over the past month. More than a month has passed since the company reported results for the quarter ended October 2023.
The Children's Place reported revenues of $480.23 million in the last reported quarter, representing a year-over-year change of -5.7%. EPS of $3.22 for the same period compares with $3.33 a year ago.
For the current quarter, The Children's Place is expected to post earnings of $0.26 per share, indicating a change of +106.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +25.4% over the last 30 days.
The Children's Place has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.