Abercrombie & Fitch Q3 Earnings: Making Progress

Small cap teen retailer Abercrombie & Fitch Co (NYSE: ANF) reportedQ3 2017 earnings before the market opened Friday with results topping expectations on higher sales nationally and at existing stores. Net sales were up 5% to $859.1 million with comparable sales for the third quarter up 4% and changes in foreign currency exchange rates benefiting net sales by 1%.

Fiscal 2017 Comparable Sales Summary (1)
Brand Geography
First Quarter Second Quarter Third Quarter Year-to-Date First Quarter Second Quarter Third Quarter Year-to-Date
Hollister 3% 5% 8% 6% United States (3)% 0% 6% 1%
Abercrombie(2) (10)% (7)% (2)% (6)% International (2)% (1)% 0% (1)%
Total Company (3)% (1)% 4% 0% Total Company (3)% (1)% 4% 0%

Net income attributable to Abercrombie & Fitch Co was $10.1 million versus $7.9 million last year.

The CEO commented:

“We are pleased by the clear progress across all brands, delivering another quarter of sequential comparable sales improvement, and a return to positive comparable sales. This sales performance in combination with disciplined expense management drove profit growth, despite the promotional environment. Our customers remain at the center of all we do, and that singular focus continues to drive both our brands forward, with effective engagement across all channels driving positive overall traffic and conversion trends. Hollister delivered another quarter of sales growth across all channels and geographies, and Abercrombie is beginning to show signs of stabilization.

We continue to execute on our strategic plan, and we are positioned to compete in what we expect to be a challenging and promotional fourth quarter. We maintain our focus on driving operating expense leverage, while also making strategic investments in marketing and omnichannel to meet our customers` needs whenever, wherever and however they choose to engage with our brands.”

For the fourth quarter of fiscal 2017, the Company expects:

Comparable sales to be up low-single digits, and net sales to be up mid- to high-single digits, including benefits from the 53rd week and changes in foreign currency exchange rates

The 53rd week to benefit net sales by approximately $38 million and operating income by approximately $2 million

Changes in foreign currency exchange rates to benefit net sales by approximately $20 million and operating income by approximately $5 million, net of hedging

A gross profit rate down approximately 100 basis points to last year’s rate of 59.3%, in line with the third quarter year-over-year decline

Operating expense, including other operating income, to be down approximately 1% from $553.7 million last year, with expense reductions partially offset by increases in volume-related expenses from higher sales and the adverse effect from changes in foreign currency exchange rates

A technical chart for Abercrombie & Fitch Coshows shares hitting against a price ceiling around the $14.50 about a month ago:

A long term performance chart shows Abercrombie & Fitch Cobouncing lower since 2013while small capUrban Outfitters, Inc (NASDAQ: URBN)andmid capThe Gap Inc (NYSE: GPS) began bouncing lower a bit later in 2015:

Finally, here is a quick recap of small cap Abercrombie & Fitch Cos recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page going into the current earnings report:

Earnings History10/30/20161/30/20174/29/20177/30/2017
EPS Est. 0.21 0.75 -0.7 -0.33
EPS Actual 0.02 0.75 -0.91 -0.16
Difference -0.19 0 -0.21 0.17
Surprise % -90.50% 0.00% -30.00% 51.50%
EPS TrendCurrent Qtr. (Oct 2017)Next Qtr. (Jan 2018)Current Year (2018)Next Year (2019)
Current Estimate 0.22 0.8 -0.01 0.02
7 Days Ago 0.22 0.8 -0.03 0.02
30 Days Ago 0.22 0.8 -0.03 0.02
60 Days Ago 0.22 0.8 -0.04 0.01
90 Days Ago 0.15 0.78 -0.3 -0.14

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