Abercrombie & Fitch Beats on Q2 Earnings, Guidance Intact - Analyst Blog

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Abercrombie & Fitch Co. ( ANF ) posted adjusted earnings per share of 19 cents in the second quarter of fiscal 2014, which increased 18.8% year over year and fared better than the Zacks Consensus Estimate of 10 cents. The improvement resulted from sustained progress driven by its profit enhancement initiative.

Abercrombie & Fitch Co - Quarterly EPS (BNRI) | FindTheBest


Including certain one-time items, Abercrombie posted earnings of 17 cents per share compared with 14 cents per share in the previous year.

Sales and Comps

Abercrombie's net sales for the quarter declined 6% to $890.6 million from $945.7 million in the year-ago quarter, due to weak performance in the domestic and international markets. Moreover, the quarterly revenue fell short of the Zacks Consensus Estimate of $917 million.

The decline in sales reflects a 9% drop in total domestic sales (including direct-to-consumer sales) to $546 million as well as a 1% decrease to $345 million, registered in the international business (including direct-to-consumer sales).

Including direct-to-consumer sales, the company's total comparable-store sales (comps) decreased 7%. The drop in comps mainly resulted from a 5% decrease in U.S. comps and a 9% decline in International comps. Direct-to-consumer comps increased 11% during the quarter.

Excluding direct-to-consumer sales, the company's total comps declined 11%. The plunge in comps mainly resulted from an 8% downside in U.S. comps and a 16% decline in International comps.

Brand-wise, Abercrombie's comparable sales including direct-to-consumer sales at its Abercrombie & Fitch, abercrombie kids and Hollister stores declined 1%, 6% and 10%, respectively. The company's Abercrombie & Fitch, abercrombie kids and Hollister brands generated revenues of $349.6 million, $70.9 million and $464.6 million, respectively.

Quarter in Detail

In the second quarter, gross margin contracted 180 basis points (bps) to 62.1% primarily due to increased promotional activities.

Store and distribution expenses, as a percentage of sales, contracted 200 bps to 47.9%, compared with the prior-year period, primarily due to lower store payroll expenses. This was partially offset by increased direct-to-consumer expenses and a $1.2 million cost associated with the ongoing profit improvement move.

Moreover, marketing, general and administrative expenses dipped nearly 6% to $111.0 million because of a fall in compensation expenses offset by a rise in marketing costs. Marketing, general and administrative expenses included charges of about $0.7 million related to the ongoing profit enhancement initiative.

Financials

Abercrombie ended the quarter with cash and cash equivalents of $311 million, borrowings of $188 million and shareholders' equity of $1,491 million. As of Aug 2, 2014, inventories were approximately $550.2 million, up nearly 3.8% from the prior-year quarter.

Further, the company continued to enhance shareholder value by buying back about 1.5 million shares valued at $60 million. Shares available for repurchase under the company's authorization were approximately 11 million, as of Aug 2, 2014.

Store Update

The company ended the quarter with a total of 997 stores, including 836 stores in the United States and 161 stores across Canada, Europe, Asia, Australia and the Middle East.

Outlook

The company has reaffirmed its outlook for fiscal 2014. Abercrombie projects fiscal 2014 earnings to range from $2.15-$2.35 per share. Comps are expected to decline by a mid-single-digit percentage.

Additionally, the company anticipates a marginal dip in gross margin rate compared with fiscal 2013 level due to average unit retail pressure and lower shipping and handling revenues, partially offset by average unit cost improvement. For the full fiscal, the company anticipates tax rate in the mid-30s and an increase in interest expense related to the company's credit facilities.

During fiscal 2014, Abercrombie intends to open about 14 full-price international outlets, comprising 5 Abercrombie & Fitch and 8 Hollister stores. Moreover, the company plans to open about 8 to 10 international and U.S. outlet stores during the fiscal year. Store closures in the U.S. due to lease expirations are expected to come at about 60, during fiscal 2014.

The company anticipates capital expenditure of $210-$220 million in fiscal 2014.

Other Stocks to Consider

Abercrombie & Fitch currently holds a Zacks Rank #2 (Buy). Some better-ranked stocks in the same industry include Citi Trends Inc. ( CTRN ), Foot Locker Inc. ( FL ) and Zumiez Inc. ( ZUMZ ). While Citi Trends sports a Zacks Rank #1 (Strong Buy), Foot Locker and Zumiez carry a Zacks Rank #2 (Buy).


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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 The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ANF , ZUMZ , FL , CTRN

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