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Abercrombie (ANF) to Report Q2 Earnings: Is a Beat Likely?

Robust digital momentum, gross margin expansion and tight expense control are expected to have aided Abercrombie (ANF) in Q2. Higher operating expense...

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This story originally appeared on Zacks

Abercrombie & Fitch Co. ANF is scheduled to report second-quarter fiscal 2021 results on Aug 26, before the opening bell. The leading apparel retailer is likely to register top and bottom-line growth when it reports second-quarter fiscal 2021 numbers.



The Zacks Consensus Estimate for fiscal second-quarter earnings is pegged at 74 cents per share, suggesting substantial growth from 23 cents reported in the year-ago quarter. The consensus estimate has increased 8.8% in the past seven days. For revenues, the consensus mark is pegged at $874.6 million, suggesting growth of 25.3% from the year-ago quarter’s reported figure.



In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 271.8%. It also has an earnings surprise of 510.7%, on average, for the trailing four quarters.

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Abercrombie & Fitch Company Price and EPS Surprise

 

Abercrombie & Fitch Company Price and EPS Surprise

Abercrombie & Fitch Company price-eps-surprise | Abercrombie & Fitch Company Quote

Key Factors to Note

Abercrombie’s second-quarter fiscal 2021 earnings results are expected to reflect gains from robust digital sales momentum, gross margin expansion and tight expense control. Strong online show along with reopened stores are expected to have boosted the top line in the to-be-reported quarter.



The company has been on track with its cost-minimization measures, which have been aiding gross margin growth. Gross margin in the fiscal second quarter is likely to have benefited from tightly managed inventories and favorable responses from new and existing customers, which have led to improved price realization. This along with stringent expense management is expected to have aided operating margins. Management remains on track to control spending by undertaking measures like occupancy cost reduction through store closures and right-sizing.



On the last reported quarter’s earnings call, management stated that it anticipates retaining the gross margin rate through continued tight inventory management, which is likely to offset the potential cost headwinds for the rest of the year.  It expects to tightly control operating costs, with a focus on using a portion of the occupancy savings for funding fulfillment, marketing and digital investments throughout fiscal 2021. This is likely to have pulled down costs and boost margins in the to-be-reported quarter.



For second-quarter fiscal 2021, management predicted net sales above the comparable 2019 level of $841 million. The company anticipated successfully managing the supply chain and labor constraints. It expects the gross margin rate to increase at least 200 bps in the fiscal second quarter from 60.7% reported in the prior-year quarter. The company remained cautiously optimistic about its ability to deliver AUR improvements through reduced promotions and clearance activity as well as potential FX tailwinds. This is likely to have been partly offset by higher product costs.



However, the company has been witnessing elevated costs for the past few quarters. Adjusted operating expenses have been increasing, owing to higher payroll and customer-facing expenses, offset by the decline in store occupancy costs. Higher marketing, general and administrative expenses due to a rise in performance-based compensation and digital media expenses is likely to have been another headwind.



Management anticipates operating expenses for the fiscal second quarter to increase 15-20% from adjusted operating expenses of $404 million reported last year. Operating expense growth is likely to have been driven by the reversal of certain COVID-related savings earned in 2020, higher fulfillment expenses, and increased marketing, payroll and digital project spending. This is expected to have been partly offset by lower occupancy costs.

What the Zacks Model Unveils

Our proven model conclusively predicts an earnings beat for Abercrombie this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.



Abercrombie sports a Zacks Rank #1 and has an Earnings ESP of +6.14%.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies you may want to consider, as our model shows that these also have the right combination of elements to post an earnings beat:



The Gap, Inc. GPS currently has an Earnings ESP of +9.12% and it flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.



Burlington Stores, Inc. BURL has an Earnings ESP of +15.26% and it sports a Zacks Rank #1 at present.



American Eagle Outfitters, Inc. AEO currently has an Earnings ESP of +1.44% and a Zacks Rank #3.



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Abercrombie & Fitch Company (ANF): Free Stock Analysis Report

 

American Eagle Outfitters, Inc. (AEO): Free Stock Analysis Report

 

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Burlington Stores, Inc. (BURL): Free Stock Analysis Report

 

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