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Can Abercrombie (ANF) Retain Positive Earnings Trend in Q3?

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Abercrombie & Fitch Co. (ANF - Free Report) is slated to report third-quarter fiscal 2018 results on Nov 29. The company has an average trailing four-quarter positive earnings surprise of 74.1%.

For the to-be-reported quarter, the Zacks Consensus Estimate for earnings is pegged at 18 cents. The consensus estimate declined by a penny over the last 30 days. Estimates also reflect a decline of 40% from the year-ago quarter figure of 30 cents.

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

Factors at Play

Abercrombie’s strategic initiatives like cost-saving efforts, capital investments, and loyalty and marketing programs are the foundation for the company’s robust performance in the past quarters. Its smooth progress on expanding direct-to-consumer (DTC) and omni-channel capabilities led to DTC sales surge 16% in second-quarter fiscal 2018. Overall, the DTC business accounted for nearly 26% of net sales in the quarter, reflecting 11% increase in comp sales. In fiscal 2018, management plans to continue investing in DTC capabilities besides bringing innovations in this channel, using customer insights and data analytics.

Further, the company is gaining from consistent positive momentum for the Hollister brand, courtesy of solid sales growth across all channels and geographies. Notably, the brand delivered the seventh straight quarter of comps growth in the reported quarter. Impressively, Hollister is gaining from positive customer response to product innovations, emerging categories and overall customer experience. In fiscal 2018, it plans to provide roughly 70 engaging customer experiences through new prototypes, rightsizing and remodels besides closing unproductive stores.

Moving ahead, the company is focused on improving customer experience by investing in loyalty programs, stores, DTC and omni-channel capabilities. However, its results for the fiscal second quarter indicated a marked weakness in the top line and comparable store sales (comps) performance, compared with the prior quarters.

Although comps and sales improved year over year, the rate of growth marked a sharp deceleration from the previous quarter. Additionally, the company’s international performance reflected a sharp decline from the previous quarter on both comps and sales fronts, whereas results remained strong in the United States. Analysts believe that most of the softness in sales and comps was due to the Hollister brand, which sold out its summer clothes too early this year due to an exceptionally hot summer in Europe.

Consequently, the company outlined a soft sales outlook for the second half of fiscal 2018. While sales are expected to be up 2-4% in fiscal 2018, currency movements are expected to serve as a headwind to the tune of nearly $15 million in the second half of the year. Moreover, the absence of an additional week compared with fiscal 2017 is expected to hurt sales by $40 million in fiscal 2018.

For the fiscal third quarter, sales are anticipated to be nearly flat year over year, including foreign currency and calendar shift impacts, down from 5% growth registered in the year-ago quarter. For , The Zacks Consensus Estimate for revenues stands at $854.8 million for the fiscal third quarter, down 0.5% year over year.

Reflecting the effect of the soft view, shares of Abercrombie declined 44.3% in the last three months, much wider than the 19.1% decrease recorded by the industry. Further, the stock’s decline of 9.9% in the past month reflects a negative sentiment ahead of the earnings release.

 



A Look at the Zacks Model

Our proven model does not conclusively show that Abercrombie is likely to beat earnings estimates in the fiscal third 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 -1.82% and a Zacks Rank #3, thus making surprise prediction difficult.

Stocks With Favorable Combination

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

DICK’S Sporting Goods, Inc. (DKS - Free Report) has an Earnings ESP of +7.35% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores, Inc. (BURL - Free Report) has an Earnings ESP of +2.95% and a Zacks Rank of 2.

Zumiez Inc. (ZUMZ - Free Report) has an Earnings ESP of +0.69% and a Zacks Rank #3.

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