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Abercrombie (ANF) Down 5.6% Since Last Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Abercrombie & Fitch (ANF - Free Report) . Shares have lost about 5.6% 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 posted mixed fourth-quarter fiscal 2022 results, wherein the bottom line missed the Zacks Consensus Estimate and declined year over year while the top line beat and improved year over year. Despite significant inflation and global macroeconomic disruption, results gained from continued momentum in the Abercrombie brand and sequential improvement in the Hollister brand.
Going into 2023, management remains optimistic about consumer demand and inventory levels. The company expects to witness net product cost benefits in 2023, driven by controlled expenses and balanced cash flow. Also, it remains on track with its 2025 Always Forward Plan.
Sales & Earnings Picture
Abercrombie reported adjusted earnings of 81 cents per share in the fourth quarter, whereas the Zacks Consensus Estimate was pegged at 85 cents. Our estimate for the bottom line was 78 cents a share. Fourth-quarter earnings reflected a significant decline of 29% from the year-ago period’s $1.14.
Net sales of $1,200 million rose 3% year over year and surpassed the Zacks Consensus Estimate of $1,180 million. Net sales grew 5% on a constant-currency basis. Our estimate for the top line was $1,173.3 million. This was mainly driven by better inventory to meet demand during the peak holiday period.
Sales by Region and Brands
Sales were strong in the United States, up 9% year over year to $920.5 million. International sales declined 13% year over year to $279.3 million. Sales in the EMEA fell 14% to $195.3 million. In APAC, sales declined 21% to $36.4 million. Other sales grew 1% to $47.6 million.
Brand-wise, net sales at Hollister declined 4% year over year to $639.4 million, while at Abercrombie, sales advanced 14% to $560.4 million. Our estimates for Hollister and Abercrombie sales were $663.6 million and $509.7 million, respectively.
Margins
The gross margin contracted 260 bps to 55.7%. The decline can be attributed to 160 bps of higher product costs, elevated cotton costs and inventory reserves, which supressed reduced freight costs.
Operating expenses, excluding other operating income, were down year over year. Increased inflation and digital fulfillment expenses were offset by lower marketing and incentive-based compensation.
As a percentage of sales, operating expenses of 48.3% contracted 190 bps from 50.2% in the prior-year quarter. The adjusted operating income was $92 million compared with $100 million in the year-ago period.
Other Financials
Abercrombie ended the reported quarter with cash and cash equivalents of $518 million, long-term net borrowings of $296.9 million and stockholders’ equity of $694.8 million, excluding non-controlling interests.
The company had liquidity of $900 million at the end of the fiscal fourth quarter, which included cash and equivalents, and borrowing available under the ABL Facility. Net cash used for operating activities was $2 million as of Jan 28.
In the quarter under review, the company did not repurchase any share. As of Jan 28, it repurchased 4.8 million shares for about $126 million. It has $232 million remaining under its share repurchase authorization announced in November 2021.
Store Update
In the fiscal fourth quarter, the company opened 28 stores, including 17 Hollister and 11 Abercrombie stores. It closed 11 Hollister and 6 Abercrombie stores. As of Jan 28, its total store base was 762, including 560 stores in the United States and 202 stores internationally.
Outlook
For the first quarter of fiscal 2023, management envisions net sales to be flat year over year at $813 million. The company anticipates the operating margin to be between flat to 2% compared with the year-ago quarter’s loss of 1% due to lower freight and raw material costs, partly offset by inflation and increased operating expenses to support investment for the 2025 Always Forward Plan initiatives. Also, the tax rate is likely to remain volatile in the said quarter due to expected low-income levels.
For fiscal 2023, ANF expects net sales growth of 1-3% from the year-ago period’s reported figure of $3.7 billion. Abercrombie is likely to continue outperforming the Hollister brand, while the U.S. region is expected to continue outperforming International. Management also anticipates sales growth to be weighted to the second half of the year, driven by the inclusion of a 53rd week for reporting purposes, along with store expansion. The 53rd week is estimated to contribute $45 million to sales in 2023.
Abercrombie expects an operating margin of 4-5%, including gains of 200 bps from reduced freight and raw material costs, somewhat offset by inflation and increased operating expense investment for the 2025 Always Forward Plan initiatives. The company expects a capital expenditure of $160 million and a tax rate in the mid-40s range.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
The consensus estimate has shifted 69.64% due to these changes.
VGM Scores
Currently, 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 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. Notably, Abercrombie has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Abercrombie (ANF) Down 5.6% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Abercrombie & Fitch (ANF - Free Report) . Shares have lost about 5.6% 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 Q4 Earnings Miss, Sales Surpass Estimates
Abercrombie posted mixed fourth-quarter fiscal 2022 results, wherein the bottom line missed the Zacks Consensus Estimate and declined year over year while the top line beat and improved year over year. Despite significant inflation and global macroeconomic disruption, results gained from continued momentum in the Abercrombie brand and sequential improvement in the Hollister brand.
Going into 2023, management remains optimistic about consumer demand and inventory levels. The company expects to witness net product cost benefits in 2023, driven by controlled expenses and balanced cash flow. Also, it remains on track with its 2025 Always Forward Plan.
Sales & Earnings Picture
Abercrombie reported adjusted earnings of 81 cents per share in the fourth quarter, whereas the Zacks Consensus Estimate was pegged at 85 cents. Our estimate for the bottom line was 78 cents a share. Fourth-quarter earnings reflected a significant decline of 29% from the year-ago period’s $1.14.
Net sales of $1,200 million rose 3% year over year and surpassed the Zacks Consensus Estimate of $1,180 million. Net sales grew 5% on a constant-currency basis. Our estimate for the top line was $1,173.3 million. This was mainly driven by better inventory to meet demand during the peak holiday period.
Sales by Region and Brands
Sales were strong in the United States, up 9% year over year to $920.5 million. International sales declined 13% year over year to $279.3 million. Sales in the EMEA fell 14% to $195.3 million. In APAC, sales declined 21% to $36.4 million. Other sales grew 1% to $47.6 million.
Brand-wise, net sales at Hollister declined 4% year over year to $639.4 million, while at Abercrombie, sales advanced 14% to $560.4 million. Our estimates for Hollister and Abercrombie sales were $663.6 million and $509.7 million, respectively.
Margins
The gross margin contracted 260 bps to 55.7%. The decline can be attributed to 160 bps of higher product costs, elevated cotton costs and inventory reserves, which supressed reduced freight costs.
Operating expenses, excluding other operating income, were down year over year. Increased inflation and digital fulfillment expenses were offset by lower marketing and incentive-based compensation.
As a percentage of sales, operating expenses of 48.3% contracted 190 bps from 50.2% in the prior-year quarter. The adjusted operating income was $92 million compared with $100 million in the year-ago period.
Other Financials
Abercrombie ended the reported quarter with cash and cash equivalents of $518 million, long-term net borrowings of $296.9 million and stockholders’ equity of $694.8 million, excluding non-controlling interests.
The company had liquidity of $900 million at the end of the fiscal fourth quarter, which included cash and equivalents, and borrowing available under the ABL Facility. Net cash used for operating activities was $2 million as of Jan 28.
In the quarter under review, the company did not repurchase any share. As of Jan 28, it repurchased 4.8 million shares for about $126 million. It has $232 million remaining under its share repurchase authorization announced in November 2021.
Store Update
In the fiscal fourth quarter, the company opened 28 stores, including 17 Hollister and 11 Abercrombie stores. It closed 11 Hollister and 6 Abercrombie stores. As of Jan 28, its total store base was 762, including 560 stores in the United States and 202 stores internationally.
Outlook
For the first quarter of fiscal 2023, management envisions net sales to be flat year over year at $813 million. The company anticipates the operating margin to be between flat to 2% compared with the year-ago quarter’s loss of 1% due to lower freight and raw material costs, partly offset by inflation and increased operating expenses to support investment for the 2025 Always Forward Plan initiatives. Also, the tax rate is likely to remain volatile in the said quarter due to expected low-income levels.
For fiscal 2023, ANF expects net sales growth of 1-3% from the year-ago period’s reported figure of $3.7 billion. Abercrombie is likely to continue outperforming the Hollister brand, while the U.S. region is expected to continue outperforming International. Management also anticipates sales growth to be weighted to the second half of the year, driven by the inclusion of a 53rd week for reporting purposes, along with store expansion. The 53rd week is estimated to contribute $45 million to sales in 2023.
Abercrombie expects an operating margin of 4-5%, including gains of 200 bps from reduced freight and raw material costs, somewhat offset by inflation and increased operating expense investment for the 2025 Always Forward Plan initiatives. The company expects a capital expenditure of $160 million and a tax rate in the mid-40s range.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
The consensus estimate has shifted 69.64% due to these changes.
VGM Scores
Currently, 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 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. Notably, Abercrombie has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.