Abercrombie & Fitch delivered a solid earnings beat and predicted a big jump in sales for this year versus 2022.
Courtesy Abercrombie & Fitch
Abercrombie & Fitch
‘s stock raced higher Wednesday after the retailer raised its outlook for sales after reporting impressive second-quarter earnings. Abercrombie’s results were a bright spot among an otherwise volatile week for retail earnings.
The owner of the Abercrombie and Hollister brands reported adjusted earnings of $1.10 a share on sales of $935 million for the period that ended on July 29. Analysts tracked by FactSet were looking for earnings of 17 cents a share on sales of $844 million.
CEO Fran Horowitz said both brands experienced lower freight costs as well as higher average unit retail. That’s another way of saying, on average, each item was being sold at a higher price from the previous period.
Abercrombie & Fitch also raised its outlook for fiscal-year sales growth on the back of the solid quarter performance. It expects sales to grow around 10% from $3.7 billion reported in 2022. It previously expected between 2% and 4% in sales growth. Analysts were looking for 4% growth.
“While the macro environment remains dynamic, our first-half results give us confidence to stay on offense for the second half,” Horowitz said.
Shares of Abercrombie (ticker:
ANF
) rose 25% on Wednesday. The stock has gained 125% this year.
Abercrombie’s results seem especially strong given the weakness seen across the sector, making it “the brightest star in the sky” this earnings season, wrote Citi analyst Paul Lejuez. While Lejuez has a Neutral rating on the stock, he believes Abercrombie’s guidance looks conservative given the company’s sales growth.
This quarter, sales grew across both of the company’s major brands. Abercrombie sales were up 26% year over year, while Hollister was up 8%. The company’s sales momentum was largely thanks to years of “deep transformational work” to modernize the brand, Horowitz said on a call with investors Wednesday.
To be sure, the company’s sales growth is “nothing to sneeze at for a mature retailer,” wrote William Blair’s Dylan Carden. But in Carden’s opinion, the bigger headline is Abercrombie’s margin growth. The company turned in operating margin of 9.6%, a jump from last year’s loss of 0.3%.
Still, Carden has a Market Perform rating on the stock, adding that the margin growth creates “as much opportunity as risk.”
“One of the concerns we have had in the midst of A&F’s run is how sustainable sales and in turn the higher-than-expected operating margins are,” he added.
Write to Karishma Vanjani at [email protected].
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