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Abercrombie's (ANF) Q2 Earnings Beat on Brand Strength, Stock Up
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Abercrombie & Fitch Co. (ANF - Free Report) reported better-than-expected bottom and top lines in second-quarter fiscal 2023. Sales and earnings also improved year over year. The company noted that its sales and operating margin exceeded expectations in the quarter.
Results benefited from the continued momentum in the Abercrombie brand and sequential improvement in the Hollister brand. The company noted that its efforts to improve the brand positioning of the Hollister brand have been paying off. Also, strategic investments across stores, digital and technology via its Always Forward Plan bodes well. Consequently, management has raised its fiscal 2023 view.
The stock has rallied more than 14% following the impressive second-quarter fiscal 2023 results and upbeat view. Shares of this Zacks Rank #1 (Strong Buy) company have gained 36.5% in the past three months compared with the industry's growth of 8.4%.
Image Source: Zacks Investment Research
Sales & Earnings Picture
Abercrombie’s adjusted earnings of $1.10 per share in the fiscal second quarter improved significantly from a loss of 3 cents reported in the prior-year quarter. Moreover, the bottom line surpassed the Zacks Consensus Estimate of 13 cents by a huge margin. The robust earnings performance can be attributed to strong top-line growth, coupled with improved gross and operating margins. Higher average unit retail (AUR) and reduced freight costs mainly aided margins.
Net sales of $935.3 million advanced 16.2% year over year and surpassed the Zacks Consensus Estimate of $842 million. Net sales grew 16% on a constant-currency basis. The significant top-line beat was mainly driven by gains across the Abercrombie and Hollister brands.
Abercrombie & Fitch Company Price, Consensus and EPS Surprise
In the fiscal second quarter, the company reorganized its structure and will now report in three geographical segments, namely Americas, Europe, the Middle East and Africa (EMEA) and Asia-Pacific (APAC). All prior periods presented have been altered to conform to this reclassification.
Sales by Region and Brands
Sales were strong in the United States, up 19% year over year to $731.4 million. on the international front, sales grew 4% to $172 million in EMEA and advanced 18% to $32 million in APAC.
Brand-wise, net sales improved 8% year over year to $472.6 million at Hollister and advanced 26% to $462.7 million at Abercrombie.
We had estimated sales growth of 15% for the Abercrombie brand and a decline of 5.4% for Hollister.
Margins
Abercrombie’s gross margin expanded 460 basis points (bps) year over year to 62.5% in the quarter. The margin expansion mainly stemmed from a 340 bps gain from reduced freight costs and a 400 bps benefit from AUR growth. This was partly negated by a 180 bps impact from higher cotton and raw material costs, and a 60 bps headwind from the currency rates.
Operating expenses, excluding other operating income, increased 6% year over year. Higher incentive-based compensation, store occupancy and technology expenses led to the increase. As a percentage of sales, operating expenses of 53.2% declined 480 bps from the prior-year quarter.
The company reported an operating income of $89.8 million against a reported operating loss of $2.2 million and an adjusted operating loss of $0.97 million in the year-ago period.
Other Financials
Abercrombie ended the fiscal second quarter with cash and cash equivalents of $617.3 million, long-term net borrowings of $297.4 million and stockholders’ equity of $768.3 million, excluding non-controlling interests.
The company had a liquidity of $974 million at the end of the fiscal second quarter, which included cash and equivalents, and borrowing available under the ABL Facility. Net cash used for operating activities was $216 million as of Jun 29, 2023.
Outlook
Driven by the robust performance, the company raised its guidance for fiscal 2023. Management envisions net sales growth to be 10% year over year for fiscal 2023, up from the prior guidance of 2-4% growth. It expects the Abercrombie brand to continue outperforming the Hollister brand in fiscal 2023. Fiscal 2023 includes a 53rd week, which is estimated to benefit sales by $45 million.
Abercrombie expects an operating margin of 8-9%, an increase from the earlier stated 5-6%. This includes gains of 250 bps year over year, driven by reduced freight and raw material costs and a modest operating expense leverage.
The company expects sales growth in fiscal 2023 to more than offset the higher expenses resulting from inflation and increased investment for the 2025 Always Forward Plan initiatives. It expects a capital expenditure of $160 million and a tax rate in the low-to-mid 30% range. The tax rate replaces the previously mentioned high-30% range.
For third-quarter fiscal 2023, the company expects sales growth to be low double-digits year over year. The sales guidance estimates a positive currency effect of 140 bps in the fiscal third quarter.
The operating margin is envisioned to be 8-10% compared with an adjusted operating margin of 2.4% in the prior-year quarter. The growth is expected to be driven by a higher gross margin on lower freight costs and higher AURs, as well as slight operating expense leverage on higher sales. The effective tax rate is anticipated to be in the mid-30% range.
Other Stocks to Consider
Here are some other top-ranked stocks that investors can consider, namely Boot Barn (BOOT - Free Report) , American Eagle Outfitters (AEO - Free Report) and Urban Outfitters (URBN - Free Report) .
Boot Barn operates as a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories. BOOT currently sports a Zacks Rank #1 and a long-term EPS rate of 6.4% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales suggests growth of 7.6% from the year-ago reported figure. BOOT has a trailing four-quarter earnings surprise of 13.5%, on average.
American Eagle, a specialty retailer of casual apparel, accessories and footwear for men and women, currently carries a Zacks Rank of 2 (Buy). AEO has a trailing four-quarter earnings surprise of 9.2%, on average.
The Zacks Consensus Estimate for American Eagle’s current financial year’s earnings per share suggests a significant increase of 275% from the year-ago reported figure. AEO has an expected earnings per share growth rate of 9.6% for three to five years.
Urban Outfitters, a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gifts products, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 20.8%.
The Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales and earnings suggests growth of 5% and 90% from the year-ago period, respectively. URBN has a trailing four-quarter earnings surprise of 19.2%, on average.
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Abercrombie's (ANF) Q2 Earnings Beat on Brand Strength, Stock Up
Abercrombie & Fitch Co. (ANF - Free Report) reported better-than-expected bottom and top lines in second-quarter fiscal 2023. Sales and earnings also improved year over year. The company noted that its sales and operating margin exceeded expectations in the quarter.
Results benefited from the continued momentum in the Abercrombie brand and sequential improvement in the Hollister brand. The company noted that its efforts to improve the brand positioning of the Hollister brand have been paying off. Also, strategic investments across stores, digital and technology via its Always Forward Plan bodes well. Consequently, management has raised its fiscal 2023 view.
The stock has rallied more than 14% following the impressive second-quarter fiscal 2023 results and upbeat view. Shares of this Zacks Rank #1 (Strong Buy) company have gained 36.5% in the past three months compared with the industry's growth of 8.4%.
Image Source: Zacks Investment Research
Sales & Earnings Picture
Abercrombie’s adjusted earnings of $1.10 per share in the fiscal second quarter improved significantly from a loss of 3 cents reported in the prior-year quarter. Moreover, the bottom line surpassed the Zacks Consensus Estimate of 13 cents by a huge margin. The robust earnings performance can be attributed to strong top-line growth, coupled with improved gross and operating margins. Higher average unit retail (AUR) and reduced freight costs mainly aided margins.
Net sales of $935.3 million advanced 16.2% year over year and surpassed the Zacks Consensus Estimate of $842 million. Net sales grew 16% on a constant-currency basis. The significant top-line beat was mainly driven by gains across the Abercrombie and Hollister brands.
Abercrombie & Fitch Company Price, Consensus and EPS Surprise
Abercrombie & Fitch Company price-consensus-eps-surprise-chart | Abercrombie & Fitch Company Quote
Segment Reorganization
In the fiscal second quarter, the company reorganized its structure and will now report in three geographical segments, namely Americas, Europe, the Middle East and Africa (EMEA) and Asia-Pacific (APAC). All prior periods presented have been altered to conform to this reclassification.
Sales by Region and Brands
Sales were strong in the United States, up 19% year over year to $731.4 million. on the international front, sales grew 4% to $172 million in EMEA and advanced 18% to $32 million in APAC.
Brand-wise, net sales improved 8% year over year to $472.6 million at Hollister and advanced 26% to $462.7 million at Abercrombie.
We had estimated sales growth of 15% for the Abercrombie brand and a decline of 5.4% for Hollister.
Margins
Abercrombie’s gross margin expanded 460 basis points (bps) year over year to 62.5% in the quarter. The margin expansion mainly stemmed from a 340 bps gain from reduced freight costs and a 400 bps benefit from AUR growth. This was partly negated by a 180 bps impact from higher cotton and raw material costs, and a 60 bps headwind from the currency rates.
Operating expenses, excluding other operating income, increased 6% year over year. Higher incentive-based compensation, store occupancy and technology expenses led to the increase. As a percentage of sales, operating expenses of 53.2% declined 480 bps from the prior-year quarter.
The company reported an operating income of $89.8 million against a reported operating loss of $2.2 million and an adjusted operating loss of $0.97 million in the year-ago period.
Other Financials
Abercrombie ended the fiscal second quarter with cash and cash equivalents of $617.3 million, long-term net borrowings of $297.4 million and stockholders’ equity of $768.3 million, excluding non-controlling interests.
The company had a liquidity of $974 million at the end of the fiscal second quarter, which included cash and equivalents, and borrowing available under the ABL Facility. Net cash used for operating activities was $216 million as of Jun 29, 2023.
Outlook
Driven by the robust performance, the company raised its guidance for fiscal 2023. Management envisions net sales growth to be 10% year over year for fiscal 2023, up from the prior guidance of 2-4% growth. It expects the Abercrombie brand to continue outperforming the Hollister brand in fiscal 2023. Fiscal 2023 includes a 53rd week, which is estimated to benefit sales by $45 million.
Abercrombie expects an operating margin of 8-9%, an increase from the earlier stated 5-6%. This includes gains of 250 bps year over year, driven by reduced freight and raw material costs and a modest operating expense leverage.
The company expects sales growth in fiscal 2023 to more than offset the higher expenses resulting from inflation and increased investment for the 2025 Always Forward Plan initiatives. It expects a capital expenditure of $160 million and a tax rate in the low-to-mid 30% range. The tax rate replaces the previously mentioned high-30% range.
For third-quarter fiscal 2023, the company expects sales growth to be low double-digits year over year. The sales guidance estimates a positive currency effect of 140 bps in the fiscal third quarter.
The operating margin is envisioned to be 8-10% compared with an adjusted operating margin of 2.4% in the prior-year quarter. The growth is expected to be driven by a higher gross margin on lower freight costs and higher AURs, as well as slight operating expense leverage on higher sales. The effective tax rate is anticipated to be in the mid-30% range.
Other Stocks to Consider
Here are some other top-ranked stocks that investors can consider, namely Boot Barn (BOOT - Free Report) , American Eagle Outfitters (AEO - Free Report) and Urban Outfitters (URBN - Free Report) .
Boot Barn operates as a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories. BOOT currently sports a Zacks Rank #1 and a long-term EPS rate of 6.4% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales suggests growth of 7.6% from the year-ago reported figure. BOOT has a trailing four-quarter earnings surprise of 13.5%, on average.
American Eagle, a specialty retailer of casual apparel, accessories and footwear for men and women, currently carries a Zacks Rank of 2 (Buy). AEO has a trailing four-quarter earnings surprise of 9.2%, on average.
The Zacks Consensus Estimate for American Eagle’s current financial year’s earnings per share suggests a significant increase of 275% from the year-ago reported figure. AEO has an expected earnings per share growth rate of 9.6% for three to five years.
Urban Outfitters, a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gifts products, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 20.8%.
The Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales and earnings suggests growth of 5% and 90% from the year-ago period, respectively. URBN has a trailing four-quarter earnings surprise of 19.2%, on average.