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Abercrombie (ANF) Posts Q2 Earnings Beat, Sales Fall Y/Y

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Abercrombie & Fitch Co. ANF reported second-quarter fiscal 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimates. Notably, the company swung back to profit in the reported quarter.

However, management continued to witness adverse impacts stemming from COVID-19 that put pressure on the top line.

Nevertheless, a strong bottom line performance coupled with a sales beat have impressed investors. Shares of Abercrombie were up nearly 9% during the pre-market trading hours on Aug 27.

Q2 Highlights

Abercrombie delivered adjusted earnings of 23 cents per share in fiscal second quarter against a loss of 48 cents in the year-ago quarter. The Zacks Consensus Estimate was pegged at a loss of 89 cents.

Net sales totaled $698.3 million, which surpassed the Zacks Consensus Estimate of $671.2 million. However, the top line declined 17% from the year-ago quarter’s figure due to adverse impacts of COVID-19 on store sales. 

Digital net sales were strong during the quarter, surging 56% year over year to $386 million.

Brand-wise, net sales declined 15% and 20% to $429.2 million and $269 million for the Hollister and Abercrombie brands, respectively. From a geographical viewpoint, net sales fell 16% in the United States and dropped 19% in International markets.

Abercrombie Fitch Company Price, Consensus and EPS Surprise

Abercrombie  Fitch Company Price, Consensus and EPS Surprise
Abercrombie Fitch Company Price, Consensus and EPS Surprise

Abercrombie Fitch Company price-consensus-eps-surprise-chart | Abercrombie Fitch Company Quote

Margins

Gross margin expanded 140 basis points (bps) to 60.7% owing to lower promotional and clearance activity.

Adjusted operating income totaled $22.2 million against a loss of $39 million in the year-ago quarter.

Other Financials

Abercrombie ended the quarter with cash and cash equivalents of $766.7 million and long-term gross borrowings (under senior secured notes) of $350 million. Also, inventories were $453.2 million, down 7% from the prior-year quarter’s levels. In the quarter under review, net cash used for investing activities amounted to $76 million.

Moving on, management suspended its share repurchase program and dividend payouts in wake of the COVID-19 outbreak. Prior to this, it returned roughly $28 million to shareholders in the forms of share repurchases and dividends. That said, the company boasts a liquidity of $1.061 billion as of Aug 1, 2020, compared with liquidity of $810 million as of Aug 3, 2019.

Store Update

As of Aug 24, 548 stores (out of 639 stores) stayed open in the United States. Internationally, the company has 210 stores, all of which were open.

Outlook

Management expects adverse impacts of the pandemic to persist in the near term. As a result, net sales for third-quarter fiscal 2020 are expected to decline in the range of 15-20% year on year.  It has refrained from providing additional expectations for the third quarter or for fiscal 2020, owing to the ongoing pandemic induced uncertainties.

Price Performance & Zacks Rank

In the past three months, the Zacks Rank #4 (Sell) company’s shares have lost 14.7% compared with the industry's surge of 23.2%.

Stocks to Consider

Big Lots BIG has an expected long-term earnings growth rate of 7.1% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Kroger Co. KR has an impressive long-term earnings growth rate of 5.5% and a Zacks Rank #2 (Buy).

Dollar General DG, also a Zacks Rank #2 stock, has long-term earnings growth rate of 12.5%.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

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