Casual apparel retailer,
Abercrombie & Fitch Co. (ANF), is scheduled to
release its fourth-quarter and full-year 2011 results on Wednesday,
February 15, 2012.
The current Zacks Consensus
earnings per share (EPS) estimate for the fourth quarter is $1.12,
representing a decline of 18.94% from last year. The Zacks
Consensus Estimate for full-year 2011 stands at $2.36 per share,
reflecting a year-over-year growth of 15.05%.
In the surprises context,
Abercrombie’s third quarter had witnessed a negative surprise of
21.92%. However, the company had continually delivered positive
earnings surprises, outplaying the Zacks Consensus Estimate for
three quarters prior to the third quarter. Despite the negative
surprise in the last quarter, the company’s average surprise for
the trailing four quarters comes to 37.19%.
Third-Quarter 2011
Recap
Battered by higher commodities
costs, Abercrombie & Fitch Co. posted third-quarter 2011
earnings of 57 cents per share on November 16, 2011, which was
substantially below the Zacks Consensus Estimate of 73 cents.
However, quarterly earnings were higher than the prior-period
earnings of 56 cents per share.
Abercrombie reported double-digit
net sales growth of 21.0% in the reported quarter, climbing
$1,075.9 million from $885.8 million in the prior-year period.
Moreover, total revenue comprehensively beats the Zacks Consensus
Estimate of $1,069.0 million.
The growth reflected a 14.0%
increase in domestic net sales (including direct-to-consumer sales)
to $820.2 million and a robust 56.0% surge in international net
sales (including direct-to-consumer sales) to $255.7 million.
Direct-to-consumer merchandise sales jumped 41.0% to $132.4 million
in the reported quarter, reflecting continuing strength.
Overall, comparable-store sales,
during the quarter, grew 7.0%. Comparable-store sales at brands
Abercrombie & Fitch and Abercrombie kids rose a respective 4.0%
and 6.0%, respectively. Hollister Co. also reported
comparable-store sales growth of 8.0% in the quarter.
Agreement
Of the 28 analysts following the
stock, 26 analysts revised their fourth quarter estimate downward
in the last 30 days. There was no upward revision in the 30-day
period. None of the analysts either raised or lowered their
estimate in the last 7 days. For fiscal 2011, 28 out of 32
analysts, slashed estimates in the past 30 days, while 14 analysts
pulled down their estimates in the last 7 days. However, there was
no upside to estimates in both periods.
For fiscal 2012, 27 out of 28
analysts cut forecasts in the last 30 days, while none of them
raised estimates. In the last 7 days, analysts kept their estimates
intact with no movement in either direction.
Magnitude
Estimate revisions by analysts
point to a substantial downside to the company’s estimates for all
discussed time periods. With only negative revisions for the fourth
quarter of 2011, the Zacks Consensus Estimate witnessed a drastic
decline of 45 cents per share to $1.12 per share over the last 30
days. Over the last 7 days, fourth quarter estimates remained
stable with no movement in analyst estimates.
For fiscal 2011, analysts cut their
estimates in both 7 and 30 day periods, bringing about a decline of
20 cents per share and 41 cents per share, respectively. For fiscal
2012, majority analysts trimmed their forecasts, with no upward
revisions, pulling down the Zacks Consensus Estimate by 81 cents
per share to $3.49 in the last 30 days. Despite no movement in
analyst estimates in fiscal 2012, the Zacks Consensus Estimate
moved up by a penny in the last 7 days.
Our Take
Abercrombie, one of the leading
specialty retailers of premium casual apparels in the U.S., has a
strong portfolio of well-established brands. Each of these brands
is focused on the unique characteristics and rapidly changing
preferences of its target customers. Abercrombie leverages its
sturdy line up of well established brands and their premium
positioning to uphold its unique niche in the specialty retailing
sector.
Looking ahead, Abercrombie remains
focused on increasing its presence in international markets as a
means to drive top-line growth. During fiscal 2011, the company
plans to open stores in Paris, Madrid, Dusseldorf, Brussels, Dublin
and Singapore under its Abercrombie & Fitch flagship chain.
Apart from this, the company intends to open 40 international
mall-based Hollister stores, providing a strong upside potential to
the company.
Further, management’s focus on
expanding global operations and improving cash flows while
maintaining a healthy balance sheet bode well for future growth
prospect. However, the company’s over-dependence on outside
suppliers, intense competition from discount retailers and
seasonality of business may undermine its future operating
performance.
Abercrombie operates in a highly
fragmented market and competes with national as well as regional
players. Besides, competing with larger retailer like Gap
Inc. (GPS), the company also competes with value-priced
specialty retailer such as Aeropostale Inc.
(ARO).
Abercrombie currently retains a
short-term Zacks #3 Rank (Hold). Though cognizant of the rising
retail market, we are also conscious of steep competition in this
space and rising commodity prices. Therefore, we maintain a
long-term Neutral recommendation on the stock.
ABERCROMBIE (ANF): Free Stock Analysis Report
AEROPOSTALE INC (ARO): Free Stock Analysis Report
GAP INC (GPS): Free Stock Analysis Report
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