Abercrombie & Fitch Co.’s ANF shares jumped 8.7% in the pre-market trading session after the company reported spectacular fourth-quarter fiscal 2015 results, wherein both the top and bottom lines exceeded expectations.
The company’s quarterly adjusted earnings of $1.08 per share were significantly ahead of the Zacks Consensus Estimate of 96 cents. However, earnings fell 6.1% year over year, on the back of currency headwinds, lower traffic and unfavorable weather.
Including certain one-time items, Abercrombie’s earnings came in at 85 cents per share, up 34.9% from 63 cents per share earned a year ago.
Quarter in Detail
Net sales were down nearly 1% year over year to $1,112.9 million. However, the figure surpassed the Zacks Consensus Estimate of $1,104 million. Further, sales jumped 2% year over year on a currency neutral basis. Comparable store sales (comps) returned to the positive territory with 1% increase year over year. On a sequential basis, the company witnessed robust comps trends across all brands and regions.
The decline in net sales reflects a 2% drop in domestic sales offset by a 3% rise in international sales, to about $745.9 million and $367 million, respectively.
Further, net sales of the company received 28% contribution from its direct-to-consumer and omni-channel businesses in the reported quarter.
Brand-wise, Abercrombie’s comparable sales decreased 2%, while that of Hollister rose 4%. The company’s Abercrombie and Hollister brands generated revenues of $509.4 million and $603.6 million, respectively.
Adjusted gross margin expanded 100 basis points in constant currency to 60.7%, mainly backed by higher average unit retails.
Fiscal 2015: A Glance
The company’s adjusted earnings for fiscal 2015 came in at $1.12 per share, down 27.3% year over year but ahead of the Zacks Consensus Estimate of $1.03. Net sales for the fiscal decreased 6% to $3,518.7 million, but surpassed the Zacks Consensus Estimate of $3,514 million. On a constant currency basis, sales fell 2%. Comps for the fiscal declined 3%.
Financials
Abercrombie ended fiscal 2015 with cash and cash equivalents of $588.6 million, gross borrowings of $293.3 million, and shareholders’ equity of $1,295.7 million. As of Jan 30, 2016, inventories were $436.7 million, down nearly 5.2% from the prior-year quarter.
During fiscal 2015, the company bought back nearly 2.5 million shares worth $50 million. Following this, the company had 6.5 million shares remaining under its buyback authorization, as of Jan 30, 2016.
On Feb 19, management declared a quarterly cash dividend of 20 cents per share, payable on Mar 14, to shareholders on record as of Mar 4, 2016.
Store Update
During the fiscal year, the company introduced 30 new stores, including 15 international full-price, 6 U.S. full-price and 9 U.S. Outlet stores. Also, the company closed 59 domestic stores.
In fiscal 2016, the company plans to introduce 15 full-price stores, comprising 10 stores in international markets, specifically in China, and 5 domestic stores. Additionally, the company plans to open about 10 new outlet stores in the U.S. Apart from this, the company intends to shutter approximately 60 stores in the U.S.
Outlook
The company remains focused on implementing its strategies to enhance its business, develop brands and assortments, and enrich consumer experience. While these factors bode well for long-term profitability, management remains cautious of the fourth quarter on account of mixed signals in the retail environment.
Abercrombie issued its outlook for fiscal 2016, during which it expects results to be adversely impacted by foreign currency headwinds.
The company projects comps to be flat to slightly positive in fiscal 2016. Sales are expected to bear a negative impact of nearly $50 million from adverse currency movements. Also, gross margin is expected to remain in line with last year, while the same is expected to increase on a constant currency basis. Operating expenses are estimated to slightly leverage to fiscal 2015 adjusted operating margin of 58.3%.
Also, for fiscal 2016, the company anticipates capital expenditure in the range of $150 – $175 million, directed toward store openings and updates, direct-to-consumer and technological initiatives.
Zacks Rank
Abercrombie currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include DSW Inc. DSW, Foot Locker Inc. FL and Zumiez Inc. ZUMZ, each carrying a Zacks Rank #2 (Buy).
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