Abercrombie & Fitch (ANF) reported a substantial increase in earnings and revenue for the second quarter, but the stock declined despite the positive results. The retailer posted a 127% increase in earnings, reaching $2.50 per share, marking its sixth consecutive quarter of triple-digit earnings growth. Revenue surged 21% to $1.13 billion, though sales growth showed a slight deceleration after accelerating in recent quarters.
Sales and Comparable Growth
Analysts had anticipated earnings of $2.22 per share and revenue of $1.1 billion. Abercrombie’s brand sales saw a 26% increase, while the Hollister brand experienced a 17% rise. Overall comparable sales rose 18%, surpassing the 16.4% growth expected by analysts and improving from last year’s 13% gain.
Inventory and Guidance Adjustments
As of August 3, inventories stood at $540 million, up from $469 million on February 23 and $493 million as of July 29, 2023. CEO Fran Horowitz acknowledged the challenging business environment but expressed confidence in the company’s performance.
Abercrombie raised its 2024 sales outlook to a growth range of 12% to 13%, up from the previous expectation of approximately 10%. This new forecast exceeds FactSet’s prediction of 11.8% growth. For the third quarter, the company expects sales to increase in the low double digits from $935 million in Q3 2023, although FactSet forecasts a 23% increase to $1.15 billion.
Impact of Fiscal Year Adjustment
The retailer’s fiscal 2024 includes one fewer week compared to fiscal 2023, which is expected to impact sales. Abercrombie anticipates this reduction to result in an $80 million hit to Q4 sales, or a 5.5 percentage point decline, and a $50 million impact for the year, or 1.2 percentage points.
Board Expansion and Analyst Views
On August 22, Abercrombie expanded its board to 10 members with the appointment of Andrew Clarke, global president of Mars Snacking. Ahead of the earnings report, Citi placed Abercrombie on a “positive catalyst watch,” anticipating strong earnings driven by robust sales and margins. Citi maintained a neutral rating on the stock with a buy point of $190.
Despite the positive earnings report, Abercrombie’s shares fell nearly 17% on Wednesday, though they had risen less than 1% the previous day. Year-to-date, Abercrombie’s shares have surged 57%.
Other Retailer Earnings Reports
In addition to Abercrombie & Fitch, Kohl’s (KSS) and Foot Locker (FL) also reported earnings on Wednesday. Victoria’s Secret (VSCO) and Five Below (FIVE) will release their results after the market close.
Foot Locker’s Earnings and Store Closures
Foot Locker reported an adjusted loss of 5 cents per share, better than the anticipated 7-cent loss. Revenue increased 1.9% to $1.89 billion, slightly above forecasts of $1.88 billion. The company announced plans to close its stores and e-commerce operations in South Korea, Denmark, Norway, and Sweden, and transfer operations in Greece and Romania. This will affect 30 stores, with changes expected to be completed by mid-2025. Foot Locker’s stock fell 10% on Wednesday and is nearing a critical support level.
Upcoming Reports and Market Trends
On Thursday, Lululemon (LULU), American Eagle Outfitters (AEO), Birkenstock (BIRK), Ulta Beauty (ULTA), and Burlington (BURL) are set to report, along with discount retailers Dollar General (DG) and Ollie’s Bargain Outlet (OLLI). Birkenstock shares are currently trading within a buy zone above a 61.83 buy point, while OLLI stock is working on a cup base with a 104.98 buy point.
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