Abercrombie & Fitch Earnings Preview

| About: Abercrombie & (ANF)
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As Abercrombie & Fitch (NYSE:ANF) is scheduled to announce its third quarter earnings results on Wednesday, [1] investors and analysts will be keenly watching for teen apparel retailer’s international strategy going forward. Abercrombie’s stock had crashed by over 20% on November 3rd on account of disappointing overseas sales that showed a slowing trend in Europe that included negative comps for flagship stores. Though we believe the decline was a bit overdone and overshadowed various positives of sales update such as Abercrombie’s net sales rising by 21% and direct-to-consumer sales growing by over 40%. Abercrombie & Fitch competes with other specialty retailers such as Aeropostale (NYSE:ARO), American Eagle Outfitters (NYSE:ANF) and Gap Inc. (NYSE: GPS) in teen apparel space.

Our price estimate for Abercrombie & Fitch stands at $64, which is nearly 13% above the current market price.

International Strategy Will be the Focus

While the sales update on November 3rd was a positive one with robust net sales and comp growth, the update did raise a question mark over consistency of Abercrombie’s international strategy. The result also echoed through the company’s stock with Abercrombie’s stock declining by nearly 24% since the sales update. We will be keenly watching the international strategy update on two broad points.

Firstly, how Abercrombie is preparing to deal with ongoing European slowdown due to Greek and Italian debt crisis? And secondly, what is the strategy of the company as both Japan and Canada continue to comp negatively?

Gross Margin Should Trend Higher Sequentially, Down Y0Y

Though international strategy update will be the main focus on Wednesday, Q3 results will also shed light on the margin side. We expect Abercrombie to gain on margins compared to Q2 primarily on account of 41% growth in direct to consumer business, which carries higher margins compared to retail business.

(Chart created by using Trefis' app)

Additionally the decline in cotton prices is also expected to provide some tailwinds to the margins. However as the retail market is still very much promotional in nature, we expect the Q3 margins to linger somewhat below the Q3 margins last year.


  1. Abercrombie reports its Q3 results on November 16th, Source: Abercrombie & Fitch’s IR

Disclosure: No positions