Abercrombie & Fitch Co. (ANF Quick QuoteANF - Free Report) has reported robust fourth-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 company noted that its efforts to improve the positioning of the Hollister brand have been paying off. Also, strategic investments across stores, digital and technology via its Always Forward Plan bode well. Shares of this Zacks Rank #2 (Buy) company have gained 71.6% in the past three months compared with the industry's 18.4% growth.

Sales & Earnings Picture

Abercrombie’s adjusted earnings of $2.97 per share in the fiscal fourth quarter improved significantly from the 88 cents reported in the year-ago quarter. Moreover, the bottom line surpassed the Zacks Consensus Estimate of earnings of $2.81. The robust earnings performance can be attributed to strong top-line growth, coupled with improved gross and operating profits.

Net sales of $1,452.9 million advanced 21% year over year and surpassed the Zacks Consensus Estimate of $1,423 million. Net sales also grew 21% 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 growth in Hollister.

Sales by Region and Brands

Sales were strong in the Americas, up 23% year over year to $1.2 billion. Additionally, sales grew 13% to $219.1 million in the EMEA and advanced 21% to $42.6 million in the APAC. Comparable sales grew 17%, 10% and 21%, respectively.

Brand-wise, net sales improved 9% year over year to $697.7 million at Hollister and advanced 35% to $755.2 million at Abercrombie. The Abercrombie brand contributed 52% to the total company sales while Hollister represented 48% of sales. Comparable sales grew 6% and 28%, respectively.

Our model had predicted sales growth of 16.9% for the Abercrombie brand and 17.6% for Hollister for the fiscal fourth quarter. We estimated sales to increase 18% in the Americas, 14.3% in the EMEA and 16.7% in the APAC for the fiscal fourth quarter.

Margins

Abercrombie’s gross margin expanded 720 basis points (bps) year over year to 62.9% in the quarter, driven by increased average unit retail (AUR) coupled with lower freight and raw material expenses. The gross margin expansion included a 290 bps gain from reduced freight costs and a 430 bps benefit from AUR growth.

Operating expenses, excluding other operating income, increased 19% year over year. Higher incentive-based compensation, inflation, marketing and technology expenses led to the increase. As a percentage of sales, operating expenses of 47.6% declined 70 bps from the year -ago quarter.

The company reported an operating income of $223 million compared with a reported operating income of $87 million and an adjusted operating income of $92 million in the year-ago period.

Our model had estimated a 430-bps expansion in the gross margin to 60%, owing to lower freight costs and improved AUR rate. We estimated a 160-bps decline in the adjusted operating expenses rate to 46.4% for the fiscal fourth quarter.

Other Financials

Abercrombie ended the fiscal fourth quarter with cash and cash equivalents of $900.9 million, long-term net borrowings of $222.1 million and stockholders’ equity of $1 billion, excluding non-controlling interests.

The company had a liquidity of $1.2 billion at the end of the fiscal fourth quarter, which included cash and equivalents, and borrowings available under the ABL Facility. Net cash provided by operating activities was $653.4 million as of Feb 3, 2024.

It exited ended fiscal 2023 with 765 stores across 5 million gross square feet. The company delivered 57 new store experiences, comprising 35 new stores, nine right sizes and 13 remodels, while closing 32 stores. In fiscal 2024, it expects to deliver around 75 new experiences with 45 new stores and 30 right sizes or remodels.
Outlook

For the first quarter of fiscal 2024, net sales are projected to be up low double-digits from $836 million reported in the year-ago period. Operating margin is expected in the band of 8-10%, higher than adjusted operating margin of 4.6% delivered in first-quarter fiscal 2023. The effective tax rate is likely to be about 10%.

Eye These Other Solid Picks

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Gap, a fashion retailer of apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 137.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Gap’s current financial-year earnings per share suggests growth of 387.5%, from the year-ago reported figure.

American Eagle, a leading apparel retailer, currently flaunts a Zacks Rank of 1. AEO delivered an earnings surprise of 23% in each of the trailing four quarters.

The Zacks Consensus Estimate for American Eagle’s current financial-year sales suggests growth of 5% from the year-ago reported figure.

Hibbett, a key sporting goods retailer, currently carries a Zacks Rank of 2. HIBB delivered an earnings surprise of 24.2% in each of the trailing four quarters.

The Zacks Consensus Estimate for Hibbett’s current financial-year sales suggests growth of 1.8% from the year-ago reported figure.