Abercrombie & Fitch (ANF 22.84, -4.38, -16.09%) has
largely given back the majority of this month’s gains, touching two-month lows,
after the company’s second quarter sales missed expectations and comparable
sales underperformed across the board.
Jumping right into it, ANF reported second quarter earnings per share (EPS) of $0.06, above the Street expectation for a loss, while revenue growth of 8.1% to $842.41 mln wasn’t enough to satisfy the Street. Additionally, ANF’s gross profit rate was 60.2%, up 110 basis points from last year, and up approximately 70 basis points from last year on a constant currency basis, net of hedging.
What’s more, the company’s comparable store sales at both its Hollister and flagship Abercrombie brands didn’t hold up against Street expectations. Specifically, comparable sales increased 3%, with Hollister marks up 4% and Abercrombie up 2%.
At Hollister, this quarter marked the segment’s seventh consecutive quarter of comp sales growth. ANF reported that it saw growth across genders and channels, with the highest second quarter sales volume in the brand's history driven by the record second quarter of sales of jeans, swim, and intimates.
At the namesake Abercrombie business, the company was encouraged by the brand's progress. Abercrombie achieved a 2% comp this quarter, marking its third consecutive quarter of positive comp sales. Following Hollister, the company is applying its customer-centric playbook to Abercrombie. Management’s strategy is already showing signs of success as the company continues to stabilize the brand's performance.
Turning to ANF’s regional performance, the U.S. continued to deliver high-single digit comp sales growth with notable improved store productivity, brand health, and customer engagement. In Asia, the company’s investments in digital and Tmall continue to pay off. In Europe, ANF saw sequential comp sales decline driven primarily by Hollister, which was negatively impacted by the prolonged hot weather, and some of its floor set transition assortments were not well-suited to the hot weather and customer's continued demand for wear now. The company has adjusted its assortments and are going into the third quarter with inventories better positioned.
Additionally, ANF touched on guidance for fiscal 2018; the company left guidance unchanged for comparable sales for the year between 2-4% and also left revenue guidance unchanged at growth between 2-4%. Further, ANF expects gross profit rate up slightly from the fiscal 2017 rate of 59.7% on a full year effective tax rate to be in the mid-to-upper 30s, including discrete non-cash income tax charges of approximately $9 mln related to share-based compensation accounting standards that went into effect in fiscal 2017, of which approximately $8 mln has been recognized to date.
The company is targeting capital expenditures to be in the range of $135-140 mln for fiscal 2018. Capital expenditures are expected to include approximately $85 mln for store updates and new stores and between $50 mln to $55 mln for direct-to-consumer and omnichannel investments, information technology, and other projects. Also, the company plans to open 22 full-price stores in fiscal 2018, including 13 Hollister and nine Abercrombie stores. In addition, the company anticipates closing up to 60 stores, primarily in the U.S., during the fiscal year through natural lease expirations. This fiscal year store closure forecast remains unchanged from outlook given at the close of FY17.
Trading in ANF today underperforms, especially when juxtaposed against the broader market -- Dow Jones Industrial Average (-0.4%), S&P 500 (-0.27%), and Nasdaq Composite (-0.06%) -- where action has been mostly split, and the broader sector -- S&P 500 Retail SPDR (XRT 51.58, -0.17, -0.33%) -- where early trading was decently in the green. ANF did bump up against some key support yesterday in its 50-day simple moving average (25.97) as a failed attempt to push the stock lower ended with shares down 0.5% vs 5.0% declines at yesterday's lows. The stock gave up the 50-day in premarket action this morning but has again found some support in a key technical level, the 200-day simple moving average (23.23).
- OUR VIEW
- LEARNING CENTER