2 Retailers Provide Cheerful Results Ahead Of The Holiday Season

| About: Abercrombie & (ANF)

Two retailers, Abercrombie & Fitch Co. (NYSE:ANF) and Staples (NASDAQ:SPLS), have provided the much needed cheer to investors with their strong quarterly earnings results on Wednesday morning. The results of these two retailers came in just a couple of weeks before the holiday season kick starts after the Thanksgiving Day, which is the last Thursday of November.

Significantly, the apparel retailer ANF bumped up its 2012 EPS outlook despite projecting a slight single digit percentage fall in comparable store sales for Q4. However, the company is confident of realizing slightly better gross margin in the fourth quarter.

Abercrombie & Fitch earned a profit of $715 million or EPS of 87 cents for Q3, higher than $50.9 million or EPS of 57 cents last year. Net sales rose 9% to $1.17 billion from $1.08 billion despite a 3% fall in comparable store sales. The quarterly results were much better than analysts' predictions of a profit of 59 cents a share and revenue of $1.11 billion.

The company's profit benefited from a 2.4 percentage points growth in gross margin fueled by a lower average unit cost besides the global mix benefit, which was partly offset by a modest fall in average unit retail and an unfavorable exchange rate.

ANF's sales in the U.S. were essentially flat at $818.6 million. However, global sales surged 37% to $351.1 million fueled by direct-to-consumer sales growth of 20%. In the direct-to-consumer program, the company's U.S. sales advanced 15%, whereas worldwide sales jumped 31%.

Moving ahead, ANF bumped up its full year EPS outlook to $2.85 - $3.00 for the year 2012 from $2.50 - $2.75, whereas analysts' are expecting the company to deliver EPS of $2.48. The company's outlook suggests that it sees better times ahead unlike earlier where it struggled to sell its T-Shirts and preppy jeans after the fashion trends were seen shifting. Aside from this, the uncertain economy has also tightened the purse strings of the teens around the globe.

Another company that provided investors the confidence on the retail stock is Staples. The company suffered a net loss of $569 million or a loss of 85 cents a share for the third quarter versus net income of $324 million or EPS of 46 cents in the year ago. On an adjusted basis, the latest quarter's EPS was 46 cents. Revenues fell 2% to $6.35 billion from $6.48 billion in the previous year. Analysts estimated Staples to earn 45 cents a share and $6.45 billion revenues.

The results of the office supplier indicate somewhat better economic conditions, including the job market. This is because of the fact that demand is often associated with professional employment rates.

While the sales from North America were flat at $2.6 billion, comparable store sales witnessed one percent downside due to a two percent traffic fall. However, average order size advanced one percent. This is because core office supplies have offset the weaknesses witnessed in the sluggish computers and software sales.

On the other hand, international sales dropped 12% to $1.1 billion hurt by weakness in the European delivery businesses apart from a 6% fall in comps.

Despite the weaknesses, Staples sees adjusted EPS to increase low single digits for the full year compared to $1.37 achieved last year. This is also better than the Street's EPS predictions of $1.36. The important factor here is that the company is expecting a growth in EPS whereas analysts' expectations indicate nil growth.

The results of the two retailers suggest that the consumers are opening up their purses. While it is not necessary that these two retailers' performance presents a better condition for the whole of the industry, the results will definitely boost the confidence for a better retail sales performance in the upcoming holiday season.

Meanwhile, National Retail Federation or NRF expects the retail sales to grow 4.1% in 2012 holiday season to $586.1 billion on top of a 5.6% growth recorded in 2011. But the significant part is that NRF sees retail sales above the 10-year average holiday sales growth of 3.5% when the global economy is passing through a difficult phase.

The latest consumer confidence that reached a five-year peak in November also ably supports the view that the retailers could benefit from higher spending during the holiday season.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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