ANF Abercrombie and Fitch Co

Recently, specialty retailer Abercrombie & Fitch Co. (ANF) announced financial results for the second-quarter 2011.

Street analysts had nearly a week to ponder on the news. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Earnings Review

Abercrombie & Fitch Co. registered earnings of 35 cents a share in the second quarter of fiscal 2011, comfortably surpassing the Zacks Consensus Estimate of 29 cents a share and beating substantially the prior-year net income of 24 cents per share.

Abercrombie reported double-digit net sales growth of 23% in the reported quarter, climbing to $916.8 million from $745.8 million in the prior-year period. Total revenue comprehensively beat the Zacks Consensus Estimate of $909.0 million.

(Read our full coverage on this earnings report: Abercrombie Beats Overall)

Agreement of Estimate Revisions

Despite the reasonably good performance in the quarter, analysts exhibited a mixed sentiment regarding Abercrombie’s 2011 and 2012 outlook. Out of 29 analysts covering the stock, 10 have revised their estimates for 2011 upward, while 6 moved in the opposite direction in the last 7 days. For fiscal 2012, out of 29 analysts, 8 analysts have positively revised their estimates with 2 downward movements in the last 7 days.

Estimates followed a more negative trend for the third quarter of fiscal 2011. For the current quarter, 3 of the 28 analysts have increased their estimates over the last 7 days, compared with 10 negative adjustments.

Magnitude of Estimate Revisions

As a result of a relatively bullish sentiment seen among analysts over the past one week, the Zacks Consensus Estimate for fiscal 2011 has moved up by 5 cents (from $3.22 to $3.27), while the 2012 Consensus Estimate increased by 3 cents to $4.70. Meanwhile, for the third quarter of 2011, the Consensus Estimate has decreased by 3 cents (from 81 cents to 78 cents) in the last 7 days.

Our Recommendation

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. Besides, the company has planned to open 40 international mall-based Hollister stores. Such expansionary policy is sure to drive upside for the stock.

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. Besides 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).

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

 
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