Abercrombie & Fitch Co. ANF issued an update on the fourth quarter and fiscal 2021 outlook, driven by the resurgence in COVID-19 cases due to the Omicron variant.
Despite the current health situation and ongoing disruptions, shares of this Zacks Rank #1 (Strong Buy) stock rose more than 5% in the after-hours trading session on Jan 10. This is expected to have resulted from strong customer demand, which is likely to result in the highest annual operating income and margin in more than 10 years along with accelerated sales trend post the holiday season.
Sturdy demand for the company’s winter and holiday collection, particularly in jeans, dresses and sweaters, contributed to its sales during the Black Friday/Cyber Monday period. However, the company witnessed weak inventory in key categories due to port congestion and transportation delays.
As a result, it failed to keep up with customer demand, which led to a loss in sales during the peak holiday season sales. Notably, the Hollister and Gilly Hicks brands suffered the most.
That said, management expects fourth-quarter fiscal 2021 sales to be flat to down on a two-year basis compared with the earlier mentioned 3-5% rise. This can be attributable to unexpected inventory delays as well as COVID-related impacts and restrictions.
However, the metric is anticipated to grow 4-6% year over year to $1.122 billion. It is also likely to repurchase shares worth $125 million in the said quarter, out of which $115 million has been already bought back quarter to date.
The company’s gross margin is expected to be flat to the 2019 reported level of 58.2%. The view includes double-digit AUR improvement on both year-over-year and two-year basis, driven by lower promotions and markdowns.
On the flip side, the adverse impacts of $75 million of freight cost pressure due to the increasing ocean and air rates as well as higher air deliveries remain concerning. The company anticipates operating expenses, excluding other operating income, to be up in the low to mid-single digits to the adjusted level of $565 million reported in 2019.
For fiscal 2021, net sales are envisioned to rise 19-20% year over year and 2-3% on a two-year basis. The Zacks Consensus Estimate for ANF’s sales for the current financial year suggests growth of 21.2%. The operating margin is estimated to be 9-10%, whereas it reported 1.7% and 2.3% in fiscal 2020 and 2019, respectively. The company expects a capital expenditure of $90-$95 million, down from the previously communicated $100 million.
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Although supply-chain disruptions and delays persist, ANF is likely to get back on track in 2022 on its efforts, including reduced square footage, expanded digital penetration and increased shareholder value. Its cost-minimization measures, and strategic investments across marketing, technology and fulfillment also bode well.
We note that the stock rallied 39.1% in a year against the industry’s decline of 23.3%. Topping it, a VGM Score of A raises optimism in the stock.
Other Stocks to Consider
We have highlighted three other top-ranked companies in the Retail – Wholesale sector, namely Target Corp. TGT, Capri Holdings CPRI and Costco Wholesale Corp. COST.
Target, a renowned omni-channel retailer, presently flaunts a Zacks Rank #1. TGT has a trailing four-quarter earnings surprise of 19.7%, on average. The TGT stock has rallied 19.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Target’s sales and EPS for the current financial year suggests growth of 13% and 40%, respectively, from the year-ago levels. TGT has an expected EPS growth rate of 14.4% for three-five years.
Capri Holdings, which operates membership warehouses, presently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 1024.9%, on average. Shares of CPRI have rallied 35.8% in the past year.
The Zacks Consensus Estimate for Capri Holdings’ sales and EPS for the current financial year suggests respective growth of 33.2% and 181.1% from the year-ago period’s reported figures. CPRI has an expected EPS growth rate of 32.2% for three to five years.
Costco Wholesale presently has a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 8.3%, on average. Shares of COST have rallied 48.4% in the past year.
The Zacks Consensus Estimate for Costco Wholesale’s sales and EPS for the current financial year suggests respective growth of 10.8% and 13.9% from the year-ago period’s reported figures. COST has an expected EPS growth rate of 8.8% for three to five years.
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Target Corporation (TGT): Free Stock Analysis Report
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