Here's What To Note Ahead Of Abercrombie's (ANF) Q4 Earnings

Abercrombie & Fitch Co. (NYSE:ANF) is scheduled to report fourth-quarter fiscal 2019 results on Mar 4, before the opening bell. Notably, the company has a positive earnings surprise of 13.2% for the trailing four quarters, on average. However, it reported a negative earnings surprise of 8% in the preceding quarter.

The Zacks Consensus Estimate for fiscal fourth-quarter earnings is pegged at $1.23, which suggests a decline of 8.9% from $1.35 earned in the year-ago quarter. We note that the consensus mark has been stable in the past 30 days. For revenues, the consensus estimate is pegged at $1,166 million, suggesting a rise of 0.9% from the year-ago quarter’s reported figure.

Key Factors to Note

Abercrombie has been grappling with soft margins due to rising costs and a highly promotional retail environment. On its last earnings call, management had anticipated a gross margin decline of 150 basis points (bps) for the fiscal fourth quarter, of which 70 bps is attributed to an adverse impact of foreign currency and tariffs and the balance 80 bps is expected to be caused by a more promotional environment. It expects operating expenses (excluding other operating income) to remain flat or increase 2% from adjusted operating expenses of $555 million reported in fourth-quarter fiscal 2018.

Soft gross margin coupled with higher operating costs might have weighed on operating margin, and consequently the bottom line in the quarter under review. Moreover, currency translations are likely to hurt sales by $5 million in the fiscal fourth quarter. On the third-quarter earnings call, management had projected both sales and comparable sales of flat to up 2% for the fiscal fourth quarter.

However, the company witnessed record revenues in the United States in the Black Friday week, which includes the period between the Tuesday before Thanksgiving and Cyber Monday. Moreover, its Hollister brand performed outstandingly and set a new record during the holiday period. Meanwhile, its flagship brand experienced momentum in the aforesaid period and generated the strongest top line over the past five years. As a result, management expects Abercrombie’s comps to outpace Hollister’s in the fiscal fourth quarter. It also anticipates the metric for the United States to outperform the same for international.

The Zacks Consensus Estimate for quarterly sales at Abercrombie and Hollister brands are currently pegged at $471 million and $710 million, respectively. The figures suggest respective growth of 35.1% and 37.9%, sequentially.

Furthermore, Abercrombie’s transformation initiatives, including store fleet optimization, omni-channel expansion and investment in the loyalty program, bode well.

What the Zacks Model Unveils

Our proven model 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 chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Abercrombie has a Zacks Rank #3 and an Earnings ESP of +0.12%.

Other Stocks Poised to Beat Earnings Estimates

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

G-III Apparel Group (NASDAQ:GIII) has an Earnings ESP of +2.71% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco (NASDAQ:COST) has an Earnings ESP of +0.20% and a Zacks Rank #2.

Ross Stores (NASDAQ:ROST) has an Earnings ESP of +0.09% and a Zacks Rank #3.

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