It has been about a month since the last earnings report for Abercrombie & Fitch (ANF Quick QuoteANF - Free Report) . Shares have lost about 3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Abercrombie due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Abercrombie’s Q2 Earnings & Sales Beat Estimates

Abercrombie has posted strong second-quarter fiscal 2024 results, with sales and earnings surpassing the Zacks Consensus Estimate and showing year-over-year improvement. This marks the sixth consecutive quarter in which Abercrombie has outperformed top and bottom-line estimates.

Abercrombie’s earnings per share (EPS) of $2.50 in the fiscal second quarter improved 131.5% from the adjusted EPS of $1.08 reported in the year-ago quarter. Moreover, the bottom line beat the Zacks Consensus Estimate of $2.14.

Net sales of $1.13 billion advanced 21% year over year on a reported basis and 22% in constant currency. The metric surpassed the Zacks Consensus Estimate of $1.09 billion. ANF’s comparable sales improved 18%.

Abercrombie’s Regional & Brand Sales Drive Growth

Sales in the Americas improved 23% year over year to $901.2 million. Additionally, sales grew 16% to $199.7 million in the EMEA and rose 3% to $33.1 million in the APAC. Comparable sales grew 18%, 17% and 21%, respectively, in the Americas, EMEA and the APAC regions.

Net sales improved 26% year over year to $582.4 million for the Abercrombie brand. Moreover, sales increased 17% to $551.6 million at Hollister, reflecting strong sequential gains, and benefits from a better-than-expected summer and back-to-school selling season. The Abercrombie brand contributed 51% to the total company sales, whereas Hollister represented 49% of sales. Comparable sales grew 21% for Abercrombie and 15% for Hollister in the reported quarter.

Our model predicted sales growth of 18.7% for the Abercrombie brand and 9% for Hollister for second-quarter fiscal 2024. We estimated sales to increase 17.4% in the Americas and 6.4% in the EMEA, with a decline of 0.1% in the APAC for the fiscal second quarter.

ANF’s Quarterly Performance: Improved Margins & Expenses

Abercrombie’s gross margin of 64.9% in the fiscal second quarter expanded 240 basis points (bps) from last year’s reported gross margin. Moreover, the gross margin expanded 230 bps from last year’s adjusted gross margin. The increase was driven by higher average unit retail, and lower freight and raw material expenses. While impressive, gross margin growth lagged our expectations of a 360-bps expansion to 66.1%.

Operating expenses, excluding other operating income, increased 12.9% year over year to $561 million. As a percentage of sales, operating expenses, excluding other operating income, of 49.5% declined 380 bps from the year-ago quarter.

The company reported an operating income of $176 million compared with a reported operating income of $89.8 million and an adjusted operating income of $88.4 million in the year-ago period. It reported an operating margin of 15.5%, up 590 bps from a reported operating margin of 9.6% and 600 bps from the adjusted operating margin of 9.5% in the year-ago quarter.

ANF’s Financial Health Looks Stable

Abercrombie ended the fiscal second quarter with cash and cash equivalents of $738.4 million, no net long-term borrowings, and stockholders’ equity of $1.2 billion, excluding non-controlling interests.

The company had a liquidity of $1.2 billion at the end of the fiscal second quarter, which included cash and equivalents, and $430 million of borrowings available under the ABL Facility. Net cash provided by operating activities was $260 million as of Aug. 3, 2024.

Abercrombie’s 3Q & FY24 Outlook Shows Promise

Abercrombie is on track to achieve its 2024 target of demonstrating sustainable, profitable growth. The company expects to continue benefiting from strength in its brands, driven by its focus on delivering high-quality, on-trend assortments for new and retained customers across regions and brands. It has also been focused on making strategic investments across stores, digital and technology, which are slated to strengthen the company in the long term.

Backed by the strong first-half fiscal 2024 results, Abercrombie has raised its sales and operating margin views for fiscal 2024. It anticipates net sales for fiscal 2024 to increase 12-13% from the $4.3 billion reported in the prior year. It earlier expected net sales growth of 10% for fiscal 2024.

The company's fiscal 2024 is one week shorter than fiscal 2023. Abercrombie anticipates this lost selling week to reduce fourth-quarter sales by $80 million or 5.5 percentage points. For the fiscal year, the retailer expects a sales impact of $50 million or 1.2 percentage points.

Abercrombie expects the Abercrombie brand to continue outperforming the Hollister brand in fiscal 2024, with the Americas region leading the regional performance.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Abercrombie has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly 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 is part of the Zacks Retail - Apparel and Shoes industry. Over the past month, Urban Outfitters (URBN Quick QuoteURBN - Free Report) , a stock from the same industry, has gained 2.9%. The company reported its results for the quarter ended July 2024 more than a month ago.

Urban Outfitters reported revenues of $1.35 billion in the last reported quarter, representing a year-over-year change of +6.3%. EPS of $1.24 for the same period compares with $1.10 a year ago.

For the current quarter, Urban Outfitters is expected to post earnings of $0.82 per share, indicating a change of -6.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -4.1% over the last 30 days.

Urban Outfitters has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.