Abercrombie (ANF) Stock Rallies on Q1 Earnings & Sales Beat

Abercrombie & Fitch Co. ANF 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.

Following the robust top and bottom-line results in first-quarter fiscal 2024, shares of Abercrombie improved 1.4% in the pre-market trading session on May 29. Shares of this Zacks Rank #2 (Buy) company have gained 16% in the past three months compared with the industry's 4.3% growth.

 

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Image Source: Zacks Investment Research

 

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.

Our model predicted sales growth of 10.1% for the Abercrombie brand and 12.5% for Hollister for first-quarter fiscal 2024. We estimated sales to increase 12.6% in the Americas and 9.4% in the EMEA, with a decline of 5.7% in the APAC for the fiscal first quarter.

Abercrombie & Fitch Company Price, Consensus and EPS Surprise

 

Abercrombie & Fitch Company Price, Consensus and EPS Surprise

Abercrombie & Fitch Company price-consensus-eps-surprise-chart | Abercrombie & Fitch Company Quote

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

Abercrombie notes that it is on track to achieve its 2024 target of demonstrating sustainable, profitable growth. The company expects to continue benefiting from strength in its brands, driven by its focus on delivering high-quality, on-trend assortments for new and retained customers across regions and brands. It has also been focused on making strategic investments across stores, digital and technology, which are slated to strengthen the company in the long term.

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.

For the second quarter of fiscal 2024, net sales are projected to be up in the mid-teens from the $935 million reported in the year-ago period. The operating margin is expected to be 13-14%, an increase from the adjusted operating margin of 9.6% delivered in second-quarter fiscal 2023. The effective tax rate is likely to be in the mid-20s.

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Gap, a fashion retailer of apparel and accessories, currently has a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 180.9%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Gap’s current financial-year sales and earnings per share suggests declines of 0.3% and 3.5%, respectively, from the year-ago reported figure.

Levi Strauss, which designs and markets jeans, casual wear and related accessories for men, women and children, presently carries a Zacks Rank of 2. The company has a trailing four-quarter earnings surprise of 16.4%, on average.

The Zacks Consensus Estimate for Levi Strauss’ current financial-year sales and earnings suggests growth of 2.9% and 15.5%, respectively, from the year-ago reported figures.

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The Zacks Consensus Estimate for J.Jill’s current financial-year sales and earnings suggests growth of 1.7% and 8%, respectively, from the year-ago reported figures.

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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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