Abercrombie (ANF) Up 2.4% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Abercrombie & Fitch (ANF). Shares have added about 2.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Abercrombie due for a pullback? 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 Q3 Earnings & Sales Beat Estimates

Abercrombie posted strong third-quarter fiscal 2024 results, with sales and earnings surpassing the Zacks Consensus Estimate and showing year-over-year improvements. This marked the seventh consecutive quarter of top and bottom-line beats for the company.

Abercrombie’s earnings per share (EPS) of $2.50 in the fiscal third quarter improved 36.6% from $1.83 in the year-ago quarter. Moreover, the bottom line beat the Zacks Consensus Estimate of $2.32. The robust earnings performance can be attributed to strong top-line growth, coupled with improved gross and operating margins.

Net sales of $1.21 billion advanced 14% year over year on both reported and constant-currency basis, and surpassed the Zacks Consensus Estimate of $1.18 billion. ANF’s comparable sales improved 16%.

Abercrombie’s Regional & Brand Sales Drive Growth

Each of the company’s regions grew in the double-digits in the reported quarter. Sales in the Americas improved 14% year over year to $986.4 million. Additionally, sales rose 15% to $181.6 million in the EMEA and 32% to $40.9 million in APAC. This marked the sixth consecutive quarter of double-digit sales growth in the Americas and the fifth straight quarter of double-digit growth in EMEA. Sales growth in EMEA and APAC was driven by strength in London and Shanghai. In APAC, sales growth was led by strength in the digital platforms. Comparable sales (comps) rose 16% each in the Americas and APAC regions, and EMEA registered 13% comps growth.

Net sales improved 15% year over year to $629.8 million for the Abercrombie brand. Moreover, sales increased 14% to $579.1 million at Hollister, reflecting strong traffic across channels, and improved unit selling and average unit retail (AUR) expansion from lower promotions. The Abercrombie brand contributed 52% to the total company sales, whereas Hollister contributed 48% to sales. Comparable sales grew 11% for Abercrombie and 21% for Hollister in the reported quarter.

ANF’s Quarterly Performance: Improved Margins & Expenses

Abercrombie’s gross margin of 65.1% in the fiscal third quarter expanded 20 basis points (bps) year over year. In dollar terms, the gross profit of $786.9 million increased 14.8% year over year. The increase was driven by higher AUR due to lower promotions, offset by higher freight costs. We expected a flat gross margin of 64.9%, with a 10.1% year-over-year increase in dollar terms.
Operating expenses, excluding other operating income, increased 11.5% year over year to $609 million. As a percentage of sales, operating expenses, excluding other operating income, of 50.4% declined 130 bps from the year-ago quarter.

The company reported an operating income of $179 million, up 30% from $138 million in the year-ago period. It registered an operating margin of 14.8%, up 170 bps from 13.1% in the year-ago quarter.

ANF’s Financial Health Looks Stable

Abercrombie ended the fiscal third quarter with cash and cash equivalents of $683 million, no net long-term borrowings, and stockholders’ equity of $1.25 billion, excluding non-controlling interests.

The company had a liquidity of $1.1 billion at the end of the fiscal third quarter, which included cash and equivalents, and $450 million of borrowings available under the ABL Facility. Net cash provided by operating activities was $403 million as of Nov. 2, 2024.

Abercrombie’s Q4 & FY24 Outlook

For the fourth quarter of fiscal 2024, net sales are projected to rise 5-7% from the $1.45 billion reported in the year-ago period. The operating margin for the fiscal fourth quarter is expected to be 16%, suggesting an increase from the 15.3% delivered in fourth-quarter fiscal 2023.

Backed by the fourth-quarter expectations and a strong holiday season, the company raised its sales outlook for fiscal 2024. It expects year-over-year sales growth of 14-15% for fiscal 2024 compared with a 12-13% rise mentioned earlier. The company anticipates an operating margin of 15% for fiscal 2024, which is at the high end of the previously stated 14-15%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, Abercrombie has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 broadly 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.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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