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Abercrombie (ANF) to Report Q1 Earnings: What's in Store?

Zacks Equity Research

Abercrombie & Fitch Co. ANF is scheduled to report first-quarter fiscal 2019 on May 29, before the opening bell.

In the last reported quarter, the company delivered a positive earnings surprise of 20.5%. Also, it boasts an impressive earnings surprise history, with seven straight quarters of recording a beat. The average four-quarter positive surprise was 88.3%. Let’s see what’s in store for the company this time around.

Abercrombie & Fitch Company Price and EPS Surprise


Abercrombie & Fitch Company Price and EPS Surprise

Abercrombie & Fitch Company price-eps-surprise | Abercrombie & Fitch Company Quote

How are Estimates Faring?

The Zacks Consensus Estimate for loss for the fiscal first quarter is pegged at 44 cents. It recorded loss of 56 cents in the year-ago quarter. Notably, the consensus mark has remained unchanged over the past 30 days. For revenues, the consensus mark stands at $733.1 million, suggesting a 0.3% increase from the year-ago quarter.

Factors Likely to Drive Results

Abercrombie is gaining momentum on the back of multiple endeavors that include planned capital investments and cost-saving efforts, as well as loyalty and marketing programs, which are aiding quarterly performances. Further, it is benefiting from strength in Hollister and digital businesses. The company’s investments in mobile, omni-channel and fulfillment significantly aided the direct-to-customer (DTC) business’ growth. Notably, digital engagement with consumers has been its core strength. The company’s strategies are likely to aid top and bottom-line growth in the fiscal first quarter.

Additionally, the expansion of Hollister stores in newer markets presents a long-term growth opportunity for Abercrombie, given the brand’s ongoing strength. With this expansion, the company garners advantages of small-sized operations, which are cheaper and require little capital investments. Impressively, Hollister is gaining from the positive customer response toward product innovations and emerging categories. Growth at this brand is likely to aid it to witness continued top-line growth in the to-be-reported quarter.

Moreover, Abercrombie witnessed operating expense leverage of 130 bps in fiscal 2018, resulting in operating margin expansion of 100 bps. The company expects this momentum to continue in fiscal 2019, with expectations of strong top-line growth, gross margin expansion and operating expense leverage, which should drive operating margin expansion. Consequently, it estimates sales to increase 2-4% in fiscal 2019, driven by low-single-digit comps growth and contribution from new stores. Gross margin is likely to improve slightly from 60.2% recorded in fiscal 2018. Driven by these, it believes that it is on track to deliver on its previously stated adjusted operating margin expansion target for fiscal 2020.

However, the company expects foreign currency headwinds and calendar shift to hurt the top line in first-quarter fiscal 2019. Notably, unfavorable foreign currency rate is expected to mar top-line results by nearly $15 million, which is likely to occur in the fiscal first quarter.

What Does the Zacks Model Say?

Our proven model shows that Abercrombie is likely to beat estimates in first-quarter fiscal 2019. This is because a stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Abercrombie currently has a Zacks Rank #3 and an Earnings ESP of +1.78%, making us reasonably confident about an earnings beat.

Other Stocks With Favorable Combination

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post earnings beat.

Target Corp. TGT has an Earnings ESP of +6.29% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nordstrom, Inc. JWN currently has an Earnings ESP of +0.78% and a Zacks Rank #3.

Dollar General Corp. DG presently has an Earnings ESP of +1.51% and a Zacks Rank #3.

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