Abercrombie & Fitch (ANF) earnings report review for the 2nd quarter of their 2021 fiscal year
Category: Stock Market and Abercrombie & Fitch (ANF)
Date: 29 August 2021 Stock Price of ANF: $37.26 Market Capital of Abercrombie & Fitch: $2.29 billion We take a look at the 3rd quarter 2020 earnings report of Abercrombie & Fitch, a global speciality retailer of apparel and accessories for Men, Woman and Kids. The group reported sales of $864.5 million and net income of $108.5 million.
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Fran Horowitz, Chief Executive Officer - As our customers’ mindset shifted to summer, we continued to deliver on product, voice and experience. Total net sales grew 24% year-over-year, or 3% from 2019. Our largest market, the U.S., had healthy net sales growth of 31% on a one-year and 11% on a two-year basis "
About Abercrombie & Fitch
Abercrombie & Fitch Co. (NYSE: ANF) is a leading, global specialty retailer of apparel and accessories for Men, Women and Kids through three renowned brands. For more than 125 years, the iconic Abercrombie & Fitch brand has outfitted innovators, explorers and entrepreneurs. Today, the brand reflects the updated attitude of the modern consumer, while remaining true to its heritage of creating expertly crafted products with an effortless, American style. The Hollister brand epitomizes the liberating and carefree spirit of the endless California summer for the teen market. abercrombie kids creates smart, playful apparel for children ages 5-14, celebrating the wide-eyed wonder of childhood.
The brands share a commitment to offering products of enduring quality and exceptional comfort that allow consumers around the world to express their own individuality and style. The Company operates more than 850 stores under these brands across North America, Europe, Asia and the Middle East, as well as the e-commerce site
The brands share a commitment to offering products of enduring quality and exceptional comfort that allow consumers around the world to express their own individuality and style. The Company operates more than 850 stores under these brands across North America, Europe, Asia and the Middle East, as well as the e-commerce site
Overview of Abercrombie & Fitch's 2nd quarter 2021 earnings report
A summary of results for the second quarter ended July 31, 2021 as compared to the second quarter ended August 1, 2020:
- Net sales of $865 million, up 24% as compared to last year and up 3% as compared to pre-COVID 2019 second quarter net sales.
- Digital net sales of $376 million decreased 3% as compared to last year and increased 52% as compared to pre-COVID 2019 second quarter digital net sales.
- Gross profit rate improved 450 basis points as compared to last year and 590 basis points as compared to 2019 to 65.2% driven by higher average unit retail on lower promotions.
- Operating expense, excluding other operating income, net, was up 9% and up 11% as compared to last year on a reported and adjusted non-GAAP basis, respectively, reflecting an increase in payroll and customer-facing expenses and a decrease in store occupancy. Operating expense as a percentage of sales decreased to 52.1% and 52.0% from 59.0% and 57.8% on a reported and adjusted non-GAAP basis, respectively.
- Operating income of $115 million and $116 million on a reported and adjusted non-GAAP basis, respectively, as compared to operating income of $14 million and $22 million last year, on a reported and adjusted non-GAAP basis, respectively.
- Net income per diluted share of $1.69 and $1.70 on a reported and adjusted non-GAAP basis, respectively, which both reflect benefits of $0.53 related to the release of income tax valuation allowances and the impact of a statutory rate change on the valuation of deferred tax assets, as compared to net income per diluted share last year of $0.09 and $0.23 on a reported and adjusted non-GAAP basis, respectively.
Abercrombie & Fitch management commentary on their 2nd quarter 2021 earnings
New Albany, Ohio, August 26, 2021: Abercrombie & Fitch Co. (NYSE: ANF) today announced results for the second quarter ended July 31, 2021. These compare to results for the second quarter ended August 1, 2020
Fran Horowitz, Chief Executive Officer, said, “As our customers’ mindset shifted to summer, we continued to deliver on product, voice and experience. Total net sales grew 24% year-over-year, or 3% from 2019. Our largest market, the U.S., had healthy net sales growth of 31% on a one-year and 11% on a two-year basis. As customers returned to stores, digital net sales held steady to last year, and remained highly penetrated, representing 44% of total second quarter sales. Our gross profit rate expanded dramatically, rising 450 basis points from last year and 590 basis points from the second quarter of 2019, benefiting from doubledigit AUR improvement. Combined with ongoing expense management, we expanded our operating margin by 1130 basis points year-over-year and 1800 basis points on a two-year basis.” “Momentum has continued quarter-to-date. We have had a strong start to the U.S. back-to-school season. Reception to the Gilly Hicks brand relaunch, associated product, and updated store experiences has been very positive. At our newest brand, Social Tourist, we are excited about our learnings and results since its launch just three months ago. Looking ahead, we will remain on offense and are confident that the proactive steps we have taken to evolve our operating model and cost structure, combined with evolved brand positioning, should continue to yield near and long-term benefits.”
Fran Horowitz, Chief Executive Officer, said, “As our customers’ mindset shifted to summer, we continued to deliver on product, voice and experience. Total net sales grew 24% year-over-year, or 3% from 2019. Our largest market, the U.S., had healthy net sales growth of 31% on a one-year and 11% on a two-year basis. As customers returned to stores, digital net sales held steady to last year, and remained highly penetrated, representing 44% of total second quarter sales. Our gross profit rate expanded dramatically, rising 450 basis points from last year and 590 basis points from the second quarter of 2019, benefiting from doubledigit AUR improvement. Combined with ongoing expense management, we expanded our operating margin by 1130 basis points year-over-year and 1800 basis points on a two-year basis.” “Momentum has continued quarter-to-date. We have had a strong start to the U.S. back-to-school season. Reception to the Gilly Hicks brand relaunch, associated product, and updated store experiences has been very positive. At our newest brand, Social Tourist, we are excited about our learnings and results since its launch just three months ago. Looking ahead, we will remain on offense and are confident that the proactive steps we have taken to evolve our operating model and cost structure, combined with evolved brand positioning, should continue to yield near and long-term benefits.”
Related Topics
Financial Position and Liquidity As of July 31, 2021 the company had:
The company repurchased approximately 2.4 million shares during the second quarter and, at the end of the second quarter, had the authority to repurchase approximately 6.5 million shares as a part of the A&F Board of Directors’ previously approved February 2021 share repurchase authorization. The company has returned $135 million to shareholders during the year-to-date period ended July 31, 2021 through share repurchases. The timing and amount of repurchases will depend on various factors, including market and business conditions. In addition, during the second quarter, the company spent $47 million to purchase $42.3 million at par value of its senior secured notes at a premium of $4.7 million.
During the first quarter of fiscal 2021, the company finalized an agreement with and paid its landlord partner to settle all remaining obligations related to the SoHo Hollister flagship store in New York City, which closed during the second quarter of fiscal 2019. Prior to this new agreement, the company was required to make payments in aggregate of $80 million pursuant to the lease agreements through fiscal 2028. The new agreement resulted in an acceleration of payments and provided for a discount resulting in a cash outflow of $64 million during the first quarter to settle all remaining obligations. This strategic use of excess cash reduced the company’s operating lease liabilities by $65 million and eliminated future interest expense related to this obligation. Depreciation and amortization was $72 million for the year-to-date period ended July 31, 2021.
- Cash and equivalents of $0.9 billion. This compares to cash and equivalents of $1.1 billion and $0.8 billion as of January 30, 2021 and August 1, 2020, respectively.
- Inventories of $416 million, down 8% as compared to August 1, 2020.
- Long-term gross borrowings under the company’s senior secured notes of $308 million (the “Senior Secured Notes”) which mature in July 2025 and bear interest at a rate of 8.75% per annum. • Borrowing available under the senior-secured asset-based revolving credit facility (the “ABL Facility”) of $249 million.
- Liquidity, comprised of cash and equivalents and borrowing available under the ABL Facility, of approximately $1.2 billion. This compares to liquidity of $1.3 billion and $1.1 billion as of January 30, 2021 and August 1, 2020, respectively. Cash Flow and Capital Allocation Details related to the company’s cash flows for the year-to-date period ended July 31, 2021 are as follows:
- Net cash provided by operating activities of $50 million. • Net cash used for investing activities of $35 million. The company expects capital expenditures for fiscal 2021 to be approximately $100 million as compared to $102 million of capital expenditures in fiscal 2020.
- Net cash used for financing activities of $200 million.
The company repurchased approximately 2.4 million shares during the second quarter and, at the end of the second quarter, had the authority to repurchase approximately 6.5 million shares as a part of the A&F Board of Directors’ previously approved February 2021 share repurchase authorization. The company has returned $135 million to shareholders during the year-to-date period ended July 31, 2021 through share repurchases. The timing and amount of repurchases will depend on various factors, including market and business conditions. In addition, during the second quarter, the company spent $47 million to purchase $42.3 million at par value of its senior secured notes at a premium of $4.7 million.
During the first quarter of fiscal 2021, the company finalized an agreement with and paid its landlord partner to settle all remaining obligations related to the SoHo Hollister flagship store in New York City, which closed during the second quarter of fiscal 2019. Prior to this new agreement, the company was required to make payments in aggregate of $80 million pursuant to the lease agreements through fiscal 2028. The new agreement resulted in an acceleration of payments and provided for a discount resulting in a cash outflow of $64 million during the first quarter to settle all remaining obligations. This strategic use of excess cash reduced the company’s operating lease liabilities by $65 million and eliminated future interest expense related to this obligation. Depreciation and amortization was $72 million for the year-to-date period ended July 31, 2021.
Abercrombie & Fitch (ANF) stock price chart over the last 5 years
The image below obtained from Google shows the stock price history of Abercrombie & Fitch (NYSE: ANF) for the last 5 years. And its been a good time for Abercrombie & Fitch stockholders. Over the last 5 years the stock of ANF increased by 123.3%.
The stock of Abercrombie & Fitch is trading at a lot closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Abercrombie & Fitch's stock is positive at this point in time.
The stock of Abercrombie & Fitch is trading at a lot closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Abercrombie & Fitch's stock is positive at this point in time.
Abercrombie & Fitch (ANF) stock vs American Eagle Outfitters (AEO) stock over last 5 years
The image below shows the stock price history of Abercrombie & Fitch (ANF) stock vs American Eagle Outfitters (AEO) stock over last 5 years over the last 3 years. Both firms are active in the retail apparel sector. The summary below shows the stock price performance of these two firms over the last 3 years:
The stock of Abercrombie & Fitch (ANF) has easily outperformed that of American Eagle Outfitters (AEO) over the last 5 years.
- Abercrombie & Fitch (ANF): 123.3%
- American Eagle Outfitters (AEO): 77.7%
The stock of Abercrombie & Fitch (ANF) has easily outperformed that of American Eagle Outfitters (AEO) over the last 5 years.
Abercrombie & Fitch (ANF) stock valuation
So what do we value the stock of Abercrombie & Fitch at based on their 2nd quarter 2021 earnings report? Based on the earnings reported we value the stock of Abercrombie & Fitch (ANF) at $28.20 a stock
We therefore believe that the stock of Abercrombie & Fitch is overvalued based on its current price of $37.26
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target (full value) price which is $28.20 in this case. A good entry point into Abercrombie & Fitch would therefore be at $25.40 or below. We expect the stock of Abercrombie Fitch to pull back from its current price to levels closer to our target price (full value price) in coming weeks and months.
We therefore believe that the stock of Abercrombie & Fitch is overvalued based on its current price of $37.26
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target (full value) price which is $28.20 in this case. A good entry point into Abercrombie & Fitch would therefore be at $25.40 or below. We expect the stock of Abercrombie Fitch to pull back from its current price to levels closer to our target price (full value price) in coming weeks and months.
Next earnings release of Abercrombie & Fitch
It is expected that Abercrombie & Fitch will release their 3rd quarter 2021 earnings report in late November 2021