A month has gone by since the last earnings report for Abercrombie & Fitch (ANF Quick QuoteANF - Free Report) . Shares have lost about 3.3% 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 Q1 Earnings & Sales Beat Estimates, Rise Y/Y

Abercrombie has reported robust first-quarter fiscal 2024 results, with sales and earnings surpassing the Zacks Consensus Estimate and improving year over year. Results have gained from strong growth across regions and brands, mainly led by the Americas region and the Abercrombie brand. The company’s bottom line benefited from significant growth in the operating margin on solid top line growth and gross margin expansion.

Abercrombie’s adjusted earnings of $2.14 per share in the fiscal first quarter improved significantly from the 39 cents reported in the year-ago quarter. Moreover, the bottom line beat the Zacks Consensus Estimate of $1.66. The robust earnings performance can be attributed to strong top-line growth, coupled with improved gross and operating profits.

Net sales of $1.02 billion advanced 22% year over year on a reported and constant-currency basis, and surpassed the Zacks Consensus Estimate of $952 million. ANF’s comparable sales improved 21%. The top-line beat was led by broad-based net sales growth across regions and brands, mainly on the company’s efforts to offer relevant assortments, compelling marketing and inventory discipline.

Sales by Region & Brands

Sales in the Americas were up 23% year over year to $820.1 million. Additionally, sales grew 19% to $164.8 million in the EMEA and rose 10% to $35.8 million in the APAC. Comparable sales grew 21%, 23% and 22%, respectively, in the Americas, EMEA and APAC regions.

Brand-wise, net sales improved 31% year over year to $571.5 million at Abercrombie and rose 12% to $449.2 million at Hollister. The Abercrombie brand contributed 56% to the total company sales, whereas Hollister represented 44% of sales. Comparable sales grew 29% for Abercrombie and 13% for Hollister in the reported quarter.

Margins

Abercrombie’s gross margin expanded 540 basis points (bps) year over year to 66.4% in the quarter, driven by increased average unit retail (AUR), coupled with lower freight and raw material expenses.

Operating expenses, excluding other operating income, increased 14.8% year over year to $549.6 million. Higher incentive-based compensation, inflation, marketing and technology expenses led to the increase. As a percentage of sales, operating expenses of 53.8% declined 350 bps from the year-ago quarter.

The company reported an operating income of $130 million compared with a reported operating income of $34 million and an adjusted operating income of $38 million in the year-ago period. It reported an operating margin of 12.7%, up significantly from 4.1% in the year-ago quarter.

Our model estimated a 220-bps expansion in the gross margin to 63.2%, owing to lower freight costs and improved AUR rate. We estimated a 170-bps increase in the adjusted operating expense rate to 55% for the fiscal first quarter.

Other Financials

Abercrombie ended the fiscal first quarter with cash and cash equivalents of $864.2 million, net long-term borrowings of $213.1 million, and stockholders’ equity of $1.09 billion, excluding non-controlling interests.

The company had a liquidity of $1.2 billion at the end of the fiscal first quarter, which included cash and equivalents, and $293 million of borrowings available under the ABL Facility. Net cash provided by operating activities was $95 million as of May 4, 2024.

Outlook

Backed by the strong first-quarter fiscal 2024 results, Abercrombie has raised its sales and operating margin view for fiscal 2024. It anticipates net sales for fiscal 2024 to increase 10% year over year from $4.3 billion. It earlier anticipated net sales growth of 4-5% for fiscal 2024. The company expects the Abercrombie brand to outperform the Hollister brand in fiscal 2024, with the Americas region continuing to lead the regional performance.

The company expects an operating margin of 14% for fiscal 2024 compared with the 12% mentioned earlier. The increased operating margin is likely to be driven by higher gross margin expansion and some operating expense leverage. The company anticipates an effective tax rate in the mid-to-high 20s for fiscal 2024. Capital expenditure is estimated to be $170 million for fiscal 2024.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 48.46% due to these changes.

VGM Scores

Currently, Abercrombie has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Abercrombie has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.