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Here's Why Abercrombie (ANF) is Marching Ahead of the Industry
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Abercrombie & Fitch Co. (ANF - Free Report) has been witnessing a solid run on the bourses, owing to its robust earnings surprise trend, solid online show and tight expense management. The Zacks Rank #3 (Hold) stock surged 68.6% in a year against the industry’s and the Retail-Wholesale sector’s decline of 9.5% and 8%, respectively.
Additionally, an uptrend in the Zacks Consensus Estimate echoes the same sentiment. Earnings estimates for the current and next financial year have increased 3% and 8.6% to $4.82 and $4.04, respectively, over the past 30 days. Notably, a VGM Score of A indicates its inherent strength.
Let’s Delve Deeper
Abercrombie has had a robust back-to-school season. This along with lower promotions and markdowns, efficient expense management, and strategic investments across marketing, technology and fulfillment aided the third-quarter fiscal 2021 results. Both top and bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. This also marked the sixth straight quarter of an earnings beat.
Net sales advanced 10% year over year, driven by better customer engagement, digital and omni-channel enhancements, and higher average unit retail (“AUR”) across brands and channels. It also reported strong growth in key metrics on a two-year basis (compared with third-quarter fiscal 2019), reflecting robust growth from the pre-pandemic levels. Compared with the pre-pandemic levels of third-quarter fiscal 2019, the company’s net sales improved 5%.
Despite store reopenings, the company’s strong digital momentum continued in third-quarter fiscal 2021, which boosted the top line. Digital sales rose 8% year over year and improved 55% from third-quarter fiscal 2019. The metric contributed about 46% to total sales in third-quarter fiscal 2021. The digital business mainly benefited from adding customers in the channel, backed by robust digital marketing efforts. Also, high customer retention and spend per customer aided sales growth.
The company remains encouraged with its strong online presence and expects to keep gaining from this platform. Management plans to continue investing toward bolstering omni-channel capabilities, including the curbside and ship-from-store services. It is also striving to optimize capacity at its distribution centers to meet the increased digital demand.
On the store front, ANF is on track with efforts to rationalize its store base by reducing dependence on underperforming tourist-driven locations. As part of its store optimization plans, Abercrombie aims to reposition larger-format flagship locations to smaller omni-channel-enabled stores. The company’s top line reflected gains from improvement in the store performance, with store sales growth of 11% in the fiscal third quarter.
The company is progressing well with its cost minimization measures. The company’s adjusted operating income reflected gains from prudent expense management strategies in the fiscal third quarter. Management remains on track to control spending by undertaking measures like occupancy cost reduction through store closures and right-sizing. Abercrombie is also working to leverage some of its structural cost-savings to boost top-line growth through investments in brand marketing, digital experience, and growing Gilly Hicks and Social Tourist brands.
Driven by the factors, management issued upbeat guidance for the fiscal fourth quarter. It envisions net sales growth of 3-5% from the 2019 level of $1.185 billion. The company expects the United States to continue outperforming the EMEA and APAC regions on positive customer response to the holiday season. Considering the above-mentioned expectations, management expects an operating margin of 9-10% for the current fiscal year — the highest since fiscal 2008.
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However, Abercrombie has been witnessing elevated costs, including higher marketing expenses, and payroll and a decrease in store occupancy for quite some time now. Marketing, general and administrative expenses rose 21% year over year and 28% on a two-year basis, driven by increased marketing spend. The company anticipates fiscal fourth-quarter operating expenses, excluding other operating income, to be up in the low to mid-single digits from the 2019 adjusted level of $565 million.
Supply-chain disruptions due to port congestions remain concerning. It also witnessed increased transportation delays in the fiscal third quarter. The company noted that freight costs and air utilization hurt the gross margin by 300 bps in the said quarter. Abercrombie expects supply-chain disruptions, and cost and delays associated with it to persist in the near term.
Management expects the fiscal fourth-quarter gross margin to be flat to the 2019 reported level of 58.2%. The guidance takes into account an adverse impact of $75 million of freight cost pressure due to the increasing ocean and air rates as well as higher air deliveries.
Despite cost headwinds, ANF’s commitment toward store optimization plans and cost-cutting initiatives along with strong digital growth acts as a tailwind.
Boot Barn Holdings, the lifestyle retailer of western and work-related footwear, apparel, and accessories, currently sports a Zacks Rank #1 (Strong Buy). Shares of BOOT have skyrocketed 193.5% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Boot Barn Holdings’ sales and earnings per share (EPS) for the current financial year suggests growth of 54.4% and 183.3%, respectively, from the year-ago period’s reported figures. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average.
Capri Holdings, which operates membership warehouses, presently flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 1024.9%, on average. Shares of CPRI have rallied 46.9% in the past year.
The Zacks Consensus Estimate for Capri Holdings’ sales and EPS for the current financial year suggests respective growth of 12.6% and 1.2% from the year-ago period’s reported figures. CPRI has an expected EPS growth rate of 56.4% for three-five years.
Tractor Supply, a rural lifestyle retailer in the United States, currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of TSCO have surged 63.7% in a year.
The Zacks Consensus Estimate for Tractor Supply’s sales and EPS for the current financial year suggests growth of 19% and 23.9%, respectively, from the year-ago period’s reported numbers. TSCO has an expected EPS growth rate of 9.6% for three-five years.
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Here's Why Abercrombie (ANF) is Marching Ahead of the Industry
Abercrombie & Fitch Co. (ANF - Free Report) has been witnessing a solid run on the bourses, owing to its robust earnings surprise trend, solid online show and tight expense management. The Zacks Rank #3 (Hold) stock surged 68.6% in a year against the industry’s and the Retail-Wholesale sector’s decline of 9.5% and 8%, respectively.
Additionally, an uptrend in the Zacks Consensus Estimate echoes the same sentiment. Earnings estimates for the current and next financial year have increased 3% and 8.6% to $4.82 and $4.04, respectively, over the past 30 days. Notably, a VGM Score of A indicates its inherent strength.
Let’s Delve Deeper
Abercrombie has had a robust back-to-school season. This along with lower promotions and markdowns, efficient expense management, and strategic investments across marketing, technology and fulfillment aided the third-quarter fiscal 2021 results. Both top and bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. This also marked the sixth straight quarter of an earnings beat.
Net sales advanced 10% year over year, driven by better customer engagement, digital and omni-channel enhancements, and higher average unit retail (“AUR”) across brands and channels. It also reported strong growth in key metrics on a two-year basis (compared with third-quarter fiscal 2019), reflecting robust growth from the pre-pandemic levels. Compared with the pre-pandemic levels of third-quarter fiscal 2019, the company’s net sales improved 5%.
Despite store reopenings, the company’s strong digital momentum continued in third-quarter fiscal 2021, which boosted the top line. Digital sales rose 8% year over year and improved 55% from third-quarter fiscal 2019. The metric contributed about 46% to total sales in third-quarter fiscal 2021. The digital business mainly benefited from adding customers in the channel, backed by robust digital marketing efforts. Also, high customer retention and spend per customer aided sales growth.
The company remains encouraged with its strong online presence and expects to keep gaining from this platform. Management plans to continue investing toward bolstering omni-channel capabilities, including the curbside and ship-from-store services. It is also striving to optimize capacity at its distribution centers to meet the increased digital demand.
On the store front, ANF is on track with efforts to rationalize its store base by reducing dependence on underperforming tourist-driven locations. As part of its store optimization plans, Abercrombie aims to reposition larger-format flagship locations to smaller omni-channel-enabled stores. The company’s top line reflected gains from improvement in the store performance, with store sales growth of 11% in the fiscal third quarter.
The company is progressing well with its cost minimization measures. The company’s adjusted operating income reflected gains from prudent expense management strategies in the fiscal third quarter. Management remains on track to control spending by undertaking measures like occupancy cost reduction through store closures and right-sizing. Abercrombie is also working to leverage some of its structural cost-savings to boost top-line growth through investments in brand marketing, digital experience, and growing Gilly Hicks and Social Tourist brands.
Driven by the factors, management issued upbeat guidance for the fiscal fourth quarter. It envisions net sales growth of 3-5% from the 2019 level of $1.185 billion. The company expects the United States to continue outperforming the EMEA and APAC regions on positive customer response to the holiday season. Considering the above-mentioned expectations, management expects an operating margin of 9-10% for the current fiscal year — the highest since fiscal 2008.
However, Abercrombie has been witnessing elevated costs, including higher marketing expenses, and payroll and a decrease in store occupancy for quite some time now. Marketing, general and administrative expenses rose 21% year over year and 28% on a two-year basis, driven by increased marketing spend. The company anticipates fiscal fourth-quarter operating expenses, excluding other operating income, to be up in the low to mid-single digits from the 2019 adjusted level of $565 million.
Supply-chain disruptions due to port congestions remain concerning. It also witnessed increased transportation delays in the fiscal third quarter. The company noted that freight costs and air utilization hurt the gross margin by 300 bps in the said quarter. Abercrombie expects supply-chain disruptions, and cost and delays associated with it to persist in the near term.
Management expects the fiscal fourth-quarter gross margin to be flat to the 2019 reported level of 58.2%. The guidance takes into account an adverse impact of $75 million of freight cost pressure due to the increasing ocean and air rates as well as higher air deliveries.
Despite cost headwinds, ANF’s commitment toward store optimization plans and cost-cutting initiatives along with strong digital growth acts as a tailwind.
Here’s How Other Stocks Fared
We have highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Boot Barn Holdings (BOOT - Free Report) , Tractor Supply Company (TSCO - Free Report) and Capri Holdings (CPRI - Free Report) .
Boot Barn Holdings, the lifestyle retailer of western and work-related footwear, apparel, and accessories, currently sports a Zacks Rank #1 (Strong Buy). Shares of BOOT have skyrocketed 193.5% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Boot Barn Holdings’ sales and earnings per share (EPS) for the current financial year suggests growth of 54.4% and 183.3%, respectively, from the year-ago period’s reported figures. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average.
Capri Holdings, which operates membership warehouses, presently flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 1024.9%, on average. Shares of CPRI have rallied 46.9% in the past year.
The Zacks Consensus Estimate for Capri Holdings’ sales and EPS for the current financial year suggests respective growth of 12.6% and 1.2% from the year-ago period’s reported figures. CPRI has an expected EPS growth rate of 56.4% for three-five years.
Tractor Supply, a rural lifestyle retailer in the United States, currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of TSCO have surged 63.7% in a year.
The Zacks Consensus Estimate for Tractor Supply’s sales and EPS for the current financial year suggests growth of 19% and 23.9%, respectively, from the year-ago period’s reported numbers. TSCO has an expected EPS growth rate of 9.6% for three-five years.