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Factors Setting the Tone for Abercrombie (ANF) in Q3 Earnings

Abercrombie & Fitch Co. ANF is scheduled to report third-quarter fiscal 2019 results on Nov 26, before the opening bell.

The company boasts an impressive earnings surprise history, having outpaced the Zacks Consensus Estimate in the last four quarters. Its bottom line beat estimates by 36%, on average, over the trailing four quarters. In the last reported quarter, it recorded a positive earnings surprise of 7.7%.

The Zacks Consensus Estimate for fiscal third-quarter earnings is pegged at 25 cents, indicating a decline of 24.2% from 33 cents reported in the year-ago quarter. However, the consensus mark was unchanged in the last 30 days. For revenues, the consensus estimate is pegged at $869.4 million, suggesting an increase of 1% from the year-ago quarter’s reported figure.

Abercrombie & Fitch Company Price and EPS Surprise


Abercrombie & Fitch Company price-eps-surprise | Abercrombie & Fitch Company Quote

Key Factors to Note

Abercrombie has been grappling with soft margins due to higher costs and a highly promotional retail environment in the United States. Impacts from higher average unit costs due to adverse product mix and soft average unit retail as well as increased promotion and markdown costs are expected to have marred its gross margin for third-quarter fiscal 2019. Additionally, the company anticipates the impact of List 3 and List 4 tariffs to hurt its near-term results.

In the last reported quarter, management had predicted gross margin decline of 100 bps for the fiscal third quarter from 61.3% reported in the year-ago quarter. The company expects currency headwinds and tariffs to hurt quarterly gross margin by 90 bps. It anticipates adjusted operating expenses of flat to up 1%.

Moreover, management had anticipated year-over-year sales growth of 1% for third-quarter fiscal 2019. Meanwhile, it expects flat comps for the quarter, suggesting a decline from 3% growth registered in third-quarter fiscal 2018. Further, unfavorable foreign currency translations have been hurting its financial performance for a while now. Management expects currency translations to hurt quarterly sales by $10 million.

However, the company gains from endeavors to expand digital and omni-channel capabilities, store fleet optimization, and focus on the Hollister brand. It is making significant progress in expanding digital and omni-channel capabilities. Its investments in mobile, omni-channel and fulfillment have been significantly aiding growth of its digital business, with digital sales improving in double digits in the fiscal second quarter.

Simultaneously, the company’s investments in store experience enhancement mainly through new store prototypes, remodeled stores and right-sizes have been aiding its performance. Further, the expansion of the Hollister stores in the newer international markets has been aiding its overall performance. Moreover, management remains confident about the Hollister brand’s prospects in the second half of fiscal 2019.

Zacks Model

Our proven model does not conclusively predict an earnings beat for Abercrombie this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Abercrombie carries a Zacks Rank #3, its Earnings ESP of -6.42% makes surprise prediction difficult.
Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Urban Outfitters, Inc URBN has an Earnings ESP of +2.93% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

L Brands, Inc LB currently has an Earnings ESP of +4.17% and a Zacks Rank of 3.

Foot Locker, Inc FL presently has an Earnings ESP of +0.29% and a Zacks Rank #3.

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Abercrombie & Fitch Company (ANF): Free Stock Analysis Report
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