ANF Abercrombie and Fitch Co

Abercrombie & Fitch Co. (ANF) is scheduled to report its second-quarter 2011 financial results before the opening bell on August 17, 2011. The current Zacks Consensus Estimates for the quarter is earnings of 25 cents a share. This represents growth of 4.2% from the prior-year earnings per share

First-Quarter 2011, Summary

Abercrombie registered earnings of 27 cents a share in the first quarter of fiscal 2011, thereby surpassing the Zacks Consensus Estimate of 11 cents a share and beating substantially the prior-year net loss of 13 cents per share.

Abercrombie reported double-digit net sales growth of 22% in the reported quarter, climbing $836.7 million from $687.8 million in the prior-year period. Total revenue comprehensively beats the Zacks Consensus Estimate of $783.0 million.

Preliminary Second Quarter Sales

Abercrombie recently reported preliminary solid sales results for the second quarter of fiscal 2011. The company recorded a comparable store sales growth of 9% in the quarter. The result was aided by strong performances at its existing stores, including the new store in Paris.

In the quarter under review, total company direct-to-consumer net merchandise sales spiked 28% to $102.1 million and total company international net sales, including direct-to-consumer net sales, jumped 74% to $231.9 million. U.S. sales, including direct-to-consumer sales, climbed 12% to $684.9 million.

Keeping up with the increasing sales graph, total sales for the quarter shot up 23.0% to $916.8 million from $745.8 million in the same quarter last year.

Agreement of Estimate

For the second quarter of fiscal 2011, out of 28 analysts covering the stock, three have revised their estimates upward, while 2 moved in the opposite direction in the last 30 days. For fiscal 2011, out of 30 analysts, 3 analysts have positively revised their estimate while none moved downwards in the last 30 days.

In the last 7 days, out of 28 analysts 1 moved in the downward direction while 1 moved upward for the second quarter of fiscal 2011. For fiscal 2011, no movement in estimates has been noticed in either direction.

Magnitude of Estimate Revisions

With no effect from earnings revisions by analysts in the last 30  and 7 days, the Zacks Consensus Estimates for the second quarter of fiscal 2011 and fiscal 2011 has remained stagnant at 25 cents a share and $3.18 per share.

Surprise History

With respect to earnings surprises, Abercrombie showed a favorable trend in the last four quarters. The company has recorded positive surprises in the trailing four quarters with a low of 4.6% and a high of 145.5%. On an average, the earnings surprise was a positive 54.9%. Based on the current flow, we expect the company to come up with healthy results in the upcoming quarter.

Our View

Currently, Abercrombie maintains a Zacks #2 Rank, which translates into a short-term Buy rating. Moreover, our long-term recommendation on the stock remains Neutral.

Headquartered in Albany, Ohio, Abercrombie operates as a specialty retailer of premium, high quality casual apparels for men, women, and kids through a network of 1,069 stores across the U.S., Canada and Europe. The company has a strong portfolio of well-established brands, each of which is focused on the unique characteristics and rapidly changing preferences of its target customers.

Moreover, Abercrombie is focused on increasing its presence in international markets in order to drive top-line growth. During fiscal 2011, the company plans to open new stores in Paris, Madrid, Dusseldorf, Brussels, Dublin and Singapore under its Abercrombie & Fitch flagship stores. Apart from this, the company has planned to open 40 international mall-based Hollister stores. Consequently, this provides a strong upside potential to the company.

Furthermore, in an effort to improve cash flow and enhance management’s focus toward core brands, the company has terminated its entire chain of underperforming RUEHL branded stores and associated direct-to-consumer operations. This is expected to increase its long-term profitability. Currently, the company has a solid balance sheet with cash and cash equivalents of $741.8 million and long-term debt of only $69.9 million at the end of the first quarter of fiscal 2011. This offers Abercrombie financial flexibility to drive future growth.

However, Abercrombie does not own or operate any manufacturing facility and therefore purchases all its merchandise requirements from independent third parties. The company's operations may be adversely affected if these manufacturers are not able to ship orders in a timely manner or meet the company’s quality standards.

Above all, Abercrombie operates in a highly fragmented market and competes with national as well as regional players. Furthermore, apart from competing with larger retailers such as Gap Inc. (GPS), Abercrombie is facing increasing competition from value-priced specialty retailers such as Aeropostale Inc. (ARO) and Buckle Inc. (BKE).

 
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