Abercrombie & Fitch (ANF) Surges on Strong Third Quarter Earnings
Shares of apparel retailer Abercrombie & Fitch (ANF: Charts, News) surged nearly 30% yesterday after the company, which has lagged its industry peers American Eagle Outfitters (AEO: Charts, News) and Aeropostale (ARO: Charts, News), reported robust third quarter earnings that topped analyst estimates.
New Albany, Ohio-based Abercrombie reported earnings of 87 cents per share, or $71.5 million, on revenue of $1.17 billion. This was a 40% improvement in earnings and 9% increase in sales from the prior year quarter, which handily topped analyst expectations of 60 cents per share on revenue of $1.11 billion. Abercrombie's strong revenue growth was fueled by overseas sales growth of 37% to $351.1 million, which offset flat U.S. sales of $818.6 million during the quarter. Daily Chart
Up to Tuesday, Abercrombie's stock has been one of the worst performing apparel retailers of the year, sliding 36% year to date, while American Eagle's stock rose 28% and Aeropostale dropped 14%. Although Abercrombie has recovered much of its prior losses, the stock still trades far below its 52-week high of $56.92. Same-store sales slid 3%, with a 4% drop at its Abercrombie & Fitch namesake stores and a 1% dip at Hollister. Analysts had projected a drop of 7% or higher. Gross margin increased by 2.4 percentage points to 62.5%, while inventories dropped 21%. Store and distribution expenses were also lower, dropping slightly from 42.9% of total sales to 42.5%. Both same-store sales and margins exceeded analyst expectations, which led the company to raise its full-year profit outlook to a range between $2.85 to $3 per share, up from its previous guidance of $2.50 to $2.75 per share. Same-store sales are expected to remain negative, although in the "mid-single digits." Since Abercrombie stock was heavily shorted over the past year, analysts expect a moderate rally as shorts cover. UBS analyst Roxanne Meyer noted, "The stock will likely rally strongly as shorts cover and others pile-in." However, Meyer remained cautious of the company's long-term growth potential, stating, "While we are encouraged by the improved trend in (comparable sales) and margins, we remain neutral as we seek clarity in improving fashion and plans for growth from here/curbing cannibalization." Other analysts were unsure if Abercrombie could maintain its brand appeal with its "preppy fashions," which may be outdated for today's teen and college students demographic. Some analysts believe that Abercrombie needs to significantly refresh its product line to compete with brands focused on a younger demographic, such as H&M and Forever 21. Abercrombie recently announced the acquisition of online shoe and clothing retailer GoJane.com, which could help it diversify its products and increase its e-commerce sales. Shares of Abercrombie trade at 13 times forward earnings with a 5-year PEG ratio of 0.78, which means the stock is fundamentally cheap with strong growth potential. However, the company faces strong growth headwinds, with the questionable appeal of its main product lines as well as fickle consumer sentiment in the United States. Higher taxes and an upcoming fiscal cliff are also putting enormous pressure on the retail apparel sector. Abercrombie's stock pays a quarterly dividend of 17 cents per share - a 1.76% yield at current prices. Other News About ANF Abercrombie & Fitch Profit Rises 40%
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Published on Nov 15, 2012
By Leo Sun