Abercrombie (ANF) Slashes Q4 Sales View on Supply-Chain Woes

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Abercrombie & Fitch Company. The ANF released an update for its fourth quarter and fiscal year 2021 outlook, driven by the resurgence of COVID-19 cases due to the Omicron variant.

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Despite the current health situation and ongoing turmoil, shares of Zacks #1 (strong buy) are up more than 5% in the after-hours trading session on January 10. This is expected to be the result of strong customer demand, which is likely to result in the highest annual operating income and margin in more than 10 years along with an accelerated sales trend after the holiday season.
Strong demand for the company’s winter and holiday collection, particularly jeans, dresses and sweaters, contributed to its sales during the Black Friday/Cyber ​​Monday period. However, the company saw poor inventory in key categories due to port congestion and transportation delays.

As a result, it failed to keep up with customer demand, which led to a loss of sales during the peak holiday sales season. It is worth noting that the Hollister and Jelly Hicks brands are the most affected.
However, management expects sales for the fourth quarter of fiscal 2021 to be flat and decrease on a two-year basis compared to the previously mentioned increase of 3-5%. This can be attributed to unexpected delays in inventory as well as COVID-related impacts and limitations.

However, the metric is expected to grow 4-6% year over year to reach $1.122 billion. It is also likely to buy back $125 million of stock in the said quarter, of which $115 million has already been purchased in the previous quarter to date.
The company’s gross margin is expected to remain flat at the 2019 reported level of 58.2%. The offering includes a double-digit AUR improvement on an annual and two-year basis, driven by lower promotions and write-downs.
On the flip side, the negative impacts of shipping cost pressure of $75 million due to increased ocean and air prices as well as higher air deliveries remain worrisome. The company expects operating expenses, excluding other operating income, to rise in the low to mid single digits to the revised level of $565 million reported in 2019.
For fiscal year 2021, net sales are expected to increase 19-20% YoY and 2-3% YoY. A Zacks consensus estimate of ANF sales for the current fiscal year indicates a growth of 21.2%. Operating margin is estimated at 9-10%, while recording 1.7% and 2.3% in fiscal year 2020 and 2019 respectively. The company expects capital expenditures of $90 million to $95 million, down from $100 million previously.

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Despite continued disruptions and delays in the supply chain, ANF is likely to get back on track in 2022 in terms of its efforts, including reduced square footage, expanded digital penetration, and increased shareholder value. Cost-cutting measures and strategic investments across marketing, technology, and fulfillment are also promising.

We note that the stock has increased by 39.1% over the year versus the industry’s decline of 23.3%. It is led by a VGM A score that sparks optimism in stocks.

Other balances to consider

We’ve highlighted three other highly rated companies in the retail-wholesale sector, namely target company. TGT, Capri Holdings CPRI and Costco wholesale company cost.
Target, a popular multi-channel retailer, currently boasts a Zacks rating of #1. TGT posted a surprise fourth-quarter profit of 19.7% on average. TGT stock is up 19.8% in the past year. you can see The full list of Zacks #1 stocks today is here.
Zacks’ consensus estimate of Target and EPS sales for the current fiscal year indicates growth of 13% and 40%, respectively, from last year’s levels. TGT has an expected EPS growth rate of 14.4% for three to five years.
Capri Holdings, which operates membership warehouses, currently holds a Zacks #2 (purchase) rating. The company posted a surprise fourth-quarter profit of 1024.9% on average. CPRI shares are up 35.8% in the past year.
Zacks’ consensus estimate of Capri Holdings’ sales and earnings per share for the current fiscal year both indicate growth of 33.2% and 181.1% each compared to figures for the same period last year. CPRI has an expected EPS growth rate of 32.2% for three to five years.
Costco Wholesale currently has a Zacks No. 2 rating. The company posted a surprise fourth-quarter profit of 8.3% on average. COST shares are up 48.4% in the past year.
A Zacks consensus estimate of Costco Wholesale and EPS sales for the current fiscal year indicates both growth of 10.8% and 13.9% compared to numbers for the same period last year. COST has a projected EPS growth rate of 8.8% for three to five years.

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