Market Overview

Abercrombie & Fitch Earnings Preview: Turnaround Expected to Continue

Abercrombie & Fitch Earnings Preview: Turnaround Expected to Continue

Abercrombie & Fitch (NYSE: ANF), which has been interested in opening a store in the former offices of The Beatles' Apple Records in London, is scheduled to report its fourth-quarter and full-year fiscal 2012 results Friday, February 22, before the markets open.

Investors will be looking for the company to demonstrate that the turnaround in the third quarter was not a fluke, and that improved inventory control, new fashions and the consolidation of stores in the U.S. can pushed further growth despite a weak holiday shopping season.


Analysts on average predict Abercrombie will report that revenue for the quarter rose almost 12 percent year-over-year to $1.48 billion. Earnings of $1.95 per share are also in the consensus forecast. That would be up from a reported profit of $1.12 per share in the comparable quarter of last year.

Analysts seem confident, as the consensus earnings per share (EPS) estimate has risen in the past 60 days from $1.93. Abercrombie has fallen short of consensus EPS estimates in just one of the past 10 quarters. The earnings beat back in the third quarter was by more than 47 percent.

The company attributed the better-than expected third-quarter results in part to strong international results and surging online sales. While same-store sales fell by three percent, that was an improvement over the 10 percent drop during the second quarter. Abercrombie also offered optimistic guidance for the fourth quarter. The share price jumped more than 34 percent following the third-quarter report.

The consensus forecast for the full year calls for earnings up almost 23 percent year-over-year to $2.98 per share, as well as revenue that is more than eight percent higher to $4.52 billion. That EPS estimate has ticked up by a penny from 60 days ago.

The Company

Abercrombie & Fitch is an American retailer that offers primarily casual wear for consumers less than 25 years of age at more than 1,000 stores in the United States and internationally. It also markets it apparel and accessories online. Its brands include Abercrombie & Fitch, abercrombie kids, Hollister and Gilly Hicks.

The company was founded in 1892, and its headquarters are in New Albany, Ohio. It is a component of the S&P 500, and it now has a market capitalization of about $4 billion. Michael S. Jeffries has been chairman of the company since May 1998 and chief executive officer since February 1992.

Competitors include American Eagle Outfitters (NYSE: AEO), which is expected to report strong year-over-year EPS growth for its fourth quarter, and Aeropostale (NYSE: ARO), from which analysts expect a decline in fourth-quarter EPS and sales, relative to a year ago. Both companies are scheduled to report in March.

During the three months that ended in January, Abercrombie saw strong Black Friday sales and it opened its first store in Dublin, Ireland.


Abercrombie has a long-term EPS growth forecast of about 18 percent, and its forward earnings multiple is less than the industry average price-to-earnings (P/E) ratio. But the operating margin is a bit less than the industry average, and the return on equity is only about six percent. The dividend yield is near 1.4 percent.

The number of Abercrombie shares sold short, as of the January 31 settlement date, represents more than seven percent of the float. That is the lowest short interest since last May, as the number of shares sold short has been dwindling since November.

Half of the 30 analysts surveyed by Thomson/First Call who follow the stock recommend buying shares, with 11 of them rating the stock at Strong Buy. The analysts' mean price target, or where they expect the stock to go, is only about four percent higher than the current share price, but a positive earnings surprise or optimistic guidance could prompt analysts to boost their price targets.

The share price is more than nine percent higher year to date and hit a nine-month high early Wednesday. The share price has been above the 50-day and 200-day moving averages since the third-quarter report. Over the past six months, the stock has outperformed the competitors mentioned above, as well as The Gap (NYSE: GPS), Urban Outfitters (NASDAQ: URBN) and the S&P 500.


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