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Can Abercrombie's (ANF) Strategic Efforts Drive Q1 Earnings?

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Abercrombie & Fitch Co. (ANF - Free Report) is slated to report first-quarter fiscal 2018 results on Jun 1. The company has pulled off a positive earnings surprise in the trailing three quarters. Also, it posted an average earnings beat of 25% in the last four quarters.

For the to-be-reported quarter, the Zacks Consensus Estimate is pegged at a loss of 79 cents, which narrowed by a penny in the last 30 days. However, the loss estimate has widened from a loss of 72 cents reported in the year-ago quarter.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Abercrombie has been gaining from significant progress on initiatives, strategic capital investments, cost-saving efforts, loyalty and marketing programs. Also, the company is expanding its digital presence with growth of direct-to-consumer (DTC) and omni-channel capabilities. Notably, its investments in mobile, omni-channel and fulfillment have significantly led to development of the DTC business, which delivered double-digit growth in both the United States and international markets in fourth-quarter fiscal 2017.

In addition, Abercrombie is aggressively expanding Hollister stores in new markets, thus enhancing the company’s overall performance. We note that Hollister brand is gaining traction from the positive customer response to product innovations, emerging categories and overall customer experience. The Hollister brand reflects persistent positive momentum from previous quarters, reaching the $2-billion mark in sales in fourth-quarter fiscal 2017. Also, comparable store sales (comps) for this brand improved 11% in the quarter.

Apart from the afore-mentioned initiatives, the company remains keen on further improving customer experience by investing in loyalty programs and store expansion. It has also shifted focus to closing the underperforming U.S. chain stores to drive top-line growth and boost profitability. Furthermore, Abercrombie expects to maintain its disciplined approach toward expense management for improving the top- and bottom-line performance. For the soon-to-be-reported quarter, analysts polled by Zacks expect revenues of $698.3 million, up 5.6% from the year-ago quarter.

Abercrombie & Fitch Company Price, Consensus and EPS Surprise

Abercrombie & Fitch Company Price, Consensus and EPS Surprise | Abercrombie & Fitch Company Quote

These initiatives have also aided Abercrombie to gain 43.8% in the past six months, faring much better that the industry’s increase of 2.9%.

However, Abercrombie’s strained gross margins since last few quarters remain a concern in first-quarter fiscal 2018. Soft traffic at stores and a highly promotional environment have been weighing on the company’s margins. Its ongoing strategic initiatives to improve profitability are hurting margins as well. Notably, the company’s guidance suggests continued gross margin pressure in the fiscal first quarter.

What Does the Zacks Model Unveil?

Our proven model shows that Abercrombie is likely to beat estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Abercrombie has an Earnings ESP of +1.54% and Zacks Rank #3, which makes us confident of positive earnings surprise.

Other Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Ulta Beauty, Inc. (ULTA - Free Report) has an Earnings ESP of +0.46% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

PVH Corp. (PVH - Free Report) has an Earnings ESP of +0.56% and a Zacks Rank of 3.

Lululemon Athletica Inc. (LULU - Free Report) has an Earnings ESP of +0.29% and a Zacks Rank #3.

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