A Stunning Rebound In Abercrombie & Fitch Lifts Shares
Abercrombie & Fitch (NYSE:ANF) has made a stunning rebound since hitting its March lows and is proof of my new theory. The retailers with well-established brands and a healthy eCommerce presence are going to come out of the pandemic even stronger than before. The combination of demand, accessibility, and a rapidly shrinking base of competition equal one thing; command of consumer dollars. In light of the 3Q report, Abercrombie & Fitch fits into another category of stock I have my eye on; companies on the brink of resuming their dividend payments.
Abercrombie & Fitch Smoke The Consensus Estimates
The Abercrombie & Fitch 3Q report is fantastic and made more so by the fact the analyst’s consensus made a sharp uptick in the 60 days prior to the report. On the top line, the revenue of $819.65 million is down on a YOY basis by -5.1% but up 17% sequentially, and 1275 basis points above the consensus. The revenue strength was driven by store reopenings and eCommerce which grew 43% YOY. eCommerce sales topped $382 million and accounted for 47% of sales.
On a segment basis, the Hollister brand was weakest with sales falling -7.0%. The flagship Abercrombie & Fitch brand saw its sales decline only -2.0%. On a regional basis, APAC was weakest with a -22% decline in sales but that is the smallest market and only 5.0% of sales. In the U.S. sales fell by -4.0% while EMEA -1.0%.
Moving down, the company was able to leverage its operating costs via reopenings, eCommerce strength, and the closures of non-performing brick&mortar locations. The gross margin improved 390 basis points to 64% of sales versus the 60.8% expected by the analysts. This is important because many retailers are reporting an increase in costs along with the rise of eCommerce. On the bottom line, adjusted EPS of $0.76 beat by $0.77 while GAAP EPS of $0.66 beat by $0.87.
“We are encouraged by quarter-to-date results, including ongoing strong digital demand, with our customers responding favorably to new product and messaging. However, this is tempered by uncertainty regarding the potential for increased COVID-related store restrictions and our expectation for elevated shipping, handling and freight costs. As we approach the peak holiday selling period, inventories remain well-controlled and we have thoughtful plans in place to help us adapt to changing business conditions,” said Fran Horowitz, CEO.
Abercrombie On Track To Resume Dividend Payments
The 3Q report is notable for many reasons including the outlook for dividend payments. Not only did the company beat the consensus by a wide margin it produced profits where only a loss was expected. This allowed the company to increase the cash position by $46 million or about 6% and improve an already sound balance sheet. The company is sitting on more than $13 per share with modest debt and low leverage. The dividend may not come back immediately but I would expect it by the first quarter of calendar 2021 if not sooner. If resumed at the previous level, ANF stock would yield close to 3.5% with shares trading at $22.50.
The 3Q report sparked a 10% increase in share prices that in turn sparked a round of profit-taking. I am not surprise to see shares moving lower now, the stock made a nice 200% increase from the March low so it’s time for the market to take some money off of the table. In the near-term, I would expect to see price action to consolidate at or near current levels with a chance of pulling back to the short-term moving average. Longer-term I would expect to see this stock rise back to the multi-year highs near $30 spurred by rising revenue, earnings, the dividend.
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