A month has gone by since the last earnings report for Abercrombie & Fitch (ANF). Shares have added about 21.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Abercrombie Posts Q2 Earnings Beat, Sales Fall Y/Y
Abercrombie reported second-quarter fiscal 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimates. Notably, the company swung back to profit in the reported quarter.
However, management continued to witness adverse impacts stemming from COVID-19 that put pressure on the top line.
Abercrombie delivered adjusted earnings of 23 cents per share in fiscal second quarter against a loss of 48 cents in the year-ago quarter. The Zacks Consensus Estimate was pegged at a loss of 89 cents.
Net sales totaled $698.3 million, which surpassed the Zacks Consensus Estimate of $671.2 million. However, the top line declined 17% from the year-ago quarter’s figure due to adverse impacts of COVID-19 on store sales.
Digital net sales were strong during the quarter, surging 56% year over year to $386 million.
Brand-wise, net sales declined 15% and 20% to $429.2 million and $269 million for the Hollister and Abercrombie brands, respectively. From a geographical viewpoint, net sales fell 16% in the United States and dropped 19% in International markets.
Gross margin expanded 140 basis points (bps) to 60.7% owing to lower promotional and clearance activity.
Adjusted operating income totaled $22.2 million against a loss of $39 million in the year-ago quarter.
Abercrombie ended the quarter with cash and cash equivalents of $766.7 million and long-term gross borrowings (under senior secured notes) of $350 million. Also, inventories were $453.2 million, down 7% from the prior-year quarter’s levels. In the quarter under review, net cash used for investing activities amounted to $76 million.
Moving on, management suspended its share repurchase program and dividend payouts in wake of the COVID-19 outbreak. Prior to this, it returned roughly $28 million to shareholders in the forms of share repurchases and dividends. That said, the company boasts a liquidity of $1.061 billion as of Aug 1, 2020, compared with liquidity of $810 million as of Aug 3, 2019.
As of Aug 24, 548 stores (out of 639 stores) stayed open in the United States. Internationally, the company has 210 stores, all of which were open.
Management expects adverse impacts of the pandemic to persist in the near term. As a result, net sales for third-quarter fiscal 2020 are expected to decline in the range of 15-20% year on year. It has refrained from providing additional expectations for the third quarter or for fiscal 2020, owing to the ongoing pandemic induced uncertainties.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted -1055.56% due to these changes.
At this time, Abercrombie has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Abercrombie has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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