Abercrombie & Fitch Co. (NYSE:ANF) has posted impressive financial results for the third quarter of fiscal 2023, exceeding the Zacks Consensus Estimate and showing significant year-over-year improvement. The success is attributed to the outstanding performance of the Abercrombie brand and positive developments in the Hollister brand.
The company highlights the successful efforts to enhance the positioning of the Hollister brand, coupled with strategic investments in stores, digital platforms, and technology through its Always Forward Plan. Consequently, management has increased its sales and operating margin projections for fiscal 2023.
Despite these positive results and an optimistic outlook, the stock experienced a 5.8% decline in the pre-market session on Nov 21. Abercrombie & Fitch, a Zacks Rank #2 (Buy) company, has seen a remarkable 75.6% gain in its shares over the past three months, outpacing the industry’s growth of 7.4%.
Sales and Earnings Overview
In the fiscal third quarter, Abercrombie reported adjusted earnings of $1.83 per share, a substantial improvement from the previous year’s 1 cent. This figure significantly surpassed the Zacks Consensus Estimate of $1.14. The robust earnings performance is attributed to strong top-line growth, improved gross and operating margins, driven by strong operating leverage, higher average unit retail (AUR), and reduced freight costs.
Net sales for the quarter reached $1,056.4 million, marking a 20% year-over-year increase and surpassing the Zacks Consensus Estimate of $978 million. On a constant-currency basis, net sales grew by 19%, with Abercrombie’s comparable sales improving by 16%. The strong sales performance was driven by substantial growth in the Abercrombie brand and positive momentum in Hollister.
Sales by Region and Brands
Sales in the Americas rose by 22% to $867.6 million, while the EMEA and APAC regions experienced growth of 14% ($158 million) and 13% ($30.9 million), respectively. Hollister’s net sales increased by 11% to $508.7 million, and Abercrombie saw a 30% growth to $547.7 million. Abercrombie represented 52% of total company sales, with Hollister contributing 48%.
Exceptional sales growth in Abercrombie resulted from consistent performance across genders, channels, and geographies, marking the highest fiscal third-quarter sales for the brand in the company’s history. Hollister’s growth was attributed to a strong back-to-school season, assortment improvements, and brand evolution, particularly in the women’s business.
Margins and Other Financials
Abercrombie’s gross margin expanded by 570 basis points (bps) to 64.9%, driven by improved product acceptance and efficient inventory management. The operating margin of 13.1% expanded by 1,110 bps year over year, powered by gross margin expansion and operating expense leverage.
As of the end of the fiscal third quarter, Abercrombie had cash and cash equivalents of $649.5 million, long-term net borrowings of $248 million, and stockholders’ equity of $866.1 million. The company’s liquidity stood at $1 billion, including cash and equivalents, and borrowings available under the ABL Facility.
Outlook
Due to the robust year-to-date performance and anticipated solid demand trends during the holiday season, Abercrombie raised its sales and operating margin guidance for fiscal 2023. The company now expects year-over-year net sales growth of 12-14%, up from the previously stated 10% growth. The operating margin guidance is also revised to 10%, indicating a 250 bps expansion.
For the fourth quarter of fiscal 2023, Abercrombie anticipates low-double-digit sales growth and an operating margin of 12-14%. The effective tax rate is expected to be 30%, with the 53rd week estimated to contribute to a gain of 375 bps in sales growth. The company’s capital expenditure for fiscal 2023 is projected to be $160 million.
Featured Image: Unsplash
