[Updated: 10/06/21] ANF Stock Update
Abercrombie & Fitch (NYSE: ANF) recently released its Q2 report, wherein revenues came in 2% below and earnings per share (EPS) were a large 145% above our estimates. The company’s revenues grew a strong 24% year-over-year (y-o-y) to $865 million, driven by an easy comparison to last year and also aided by a strong start to the U.S. back-to-school season, solid response to the Gilly Hicks brand relaunch, and updated store experiences. That said, the company’s revenue was 3% above pre-pandemic levels from Q2 2019. The core U.S. market had healthy net sales growth of 11% on a two-year basis. As customers returned to stores, digital net sales declined 3% y-o-y but were up 52% compared to Q2 2019, representing 44% of total second-quarter sales. ANF’s gross margin came in at 65.2% in Q2, up 590 basis points from the second quarter of 2019 – benefiting from double-digit AUR (average unit retail) improvement. This, combined with ongoing expense management, led to an expansion of operating margin by a whopping 1800 basis points on a two-year basis. Consequently, the company’s adjusted earnings per share came in at $1.70 (vs. our $0.69 expectations), compared to $0.23 in Q2 2020, and a loss of $0.48 in the pre-pandemic quarter. It should be noted that the current quarter benefited from about $0.53 related to some one-time tax items.
We have updated our model following the fiscal Q2 release. We now forecast Abercrombie & Fitch’s Revenues to be $3.8 billion for fiscal 2021, up 21% y-o-y, compared to a prior forecast of a 15% y-o-y growth in revenues. We also expect EPS to come in at $4.18, up from a loss of $1.82 last year, compared to our prior estimate of only $1.96. Given the changes to our revenues and earnings forecast, we have revised our Abercrombie & Fitch’s Valuation at $39 per share, based on $4.18 expected EPS and a 9.3x P/E multiple for fiscal 2021 – marginally lower than the current market price. We believe ANF stock appears appropriately priced at the current market price of around $40.
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[Updated: 08/25/21] ANF Q2 Pre-Earnings
Abercrombie & Fitch (NYSE: ANF), a specialty retailer selling casual clothing and footwear, is scheduled to report its fiscal second-quarter results on Thursday, August 26. We expect ANF stock to likely trade sideways due to mixed fiscal second-quarter results with revenues beating expectations but earnings falling short. The consumer discretionary stocks have been recovering well in the fiscal first quarter 0f 2021 on the back of increased vaccination rates in the U.S. The pandemic accelerated the e-commerce shift for ANF, which was more cost-efficient for the company. In fact, the retailer has the highest gross profit margins in the retail industry at 63% (as of Q1) and its operating margin sits at 7.3% ( well above the almost 5% level that most traditional retailers generally see). While we expect this growth momentum to continue into the second quarter as well, the current market situation also looks uncertain considering Delta variant concerns.
Our forecast indicates that ANF’s valuation is around $42 a share, which is almost in line with the current market price. Look at our interactive dashboard analysis on ANF‘s pre-earnings: What To Expect in Q2? for more details.
(1) Revenues expected to be above consensus estimates
Trefis estimates ANF’s Q2 revenues to be around $885.4 Mil, 2% above the consensus estimate of $869.3 Mil. While the retailer’s top line grew 61% y-o-y in the first quarter, its sales were up 6% from the first-quarter 2019 sales. By brand, the company’s net sales increased 3% compared to Q1 2019 for Hollister, which includes Gilly Hicks, and 11% for Abercrombie, which includes abercrombie kids. To add to this, digital sales grew 45% y-o-y and contributed around 52% of total sales in the quarter. All this indicating that the retailer is clearly resonating with shoppers right now.
In the first quarter, the U.S. benefited from government stimulus, a mini back-to-school season, and easing of Covid restrictions. Although large countries remained closed internationally. We expect the upcoming Q2 to realize a benefit from the further lifting of Covid restrictions in Q2 and reopening of key counties in Western Europe. For the full year, we expect ANF’s revenues to grow 16% y-o-y.
2) EPS likely to be below consensus estimates
ANF’s Q2 earnings per share (EPS) is expected to be $0.69 per Trefis analysis, 4% below the consensus estimate of $0.72. The first-quarter 2021 adjusted earnings came in at $0.67 per share, up from a loss of $3.30 per share in 2020, and also up from an adjusted loss of $0.29 per share in 2019. The company observed that it was able to keep inventories under control, helping to support strong margins in Q1.
(3) Stock price estimate around the current market price
Going by our ANF Valuation, with an earnings per share (EPS) estimate of around $1.96 and a P/E multiple of 21.5x in fiscal 2021, this translates into a price of $42, which is mostly in line with the current market price.
It is helpful to see how peers stack up. ANF Stock Comparison With Peers for how Abercrombie & Fitch compares against peers on metrics that matter.
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