Young adult apparel retailer Abercrombie & Fitch (NYSE:ANF) beat analysts' expectations in Q3 FY2023, with revenue up 20% year on year to $1.06 billion. Turning to EPS, Abercrombie and Fitch (NYSE:ANF) made a non-GAAP profit of $1.83 per share, improving from its profit of $0.01 per share in the same quarter last year.
Is now the time to buy Abercrombie and Fitch? Find out by reading the original article on StockStory.
Abercrombie and Fitch (ANF) Q3 FY2023 Highlights:
- Revenue: $1.06 billion vs analyst estimates of $981.2 million (7.7% beat)
- EPS (non-GAAP): $1.83 vs analyst estimates of $1.18 (54.7% beat)
- Full year guidance for net sales growth and operating margin both raised
- Free Cash Flow of $223.6 million is up from -$102.2 million in the same quarter last year (beat)
- Gross Margin (GAAP): 64.9%, up from 59.2% in the same quarter last year (beat)
- Same-Store Sales were up 16% year on year (big beat vs. expectations of up 9% year on year)
- Store Locations: 760 at quarter end, increasing by 9 over the last 12 months
Founded as an outdoor and sporting brand, Abercrombie & Fitch (NYSE:ANF) evolved to become a specialty retailer that sells its own brand of fashionable clothing to young adults.
Apparel RetailerApparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.
Sales GrowthAbercrombie and Fitch is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the other hand, it has an edge over smaller competitors with fewer resources and can still flex high growth rates because it's growing off a smaller base than its larger counterparts.
As you can see below, the company's annualized revenue growth rate of 2.9% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre as its store footprint remained relatively unchanged, implying that growth was driven by more sales at existing, established stores.
This quarter, Abercrombie and Fitch reported remarkable year-on-year revenue growth of 20%, and its $1.06 billion in revenue topped Wall Street's estimates by 7.7%. Looking ahead, analysts expect sales to grow 2.8% over the next 12 months.
Number of StoresA retailer's store count often determines on how much revenue it can generate.
When a retailer like Abercrombie and Fitch keeps its store footprint steady, it usually means that demand is stable and it's focused on improving operational efficiency to increase profitability. Since last year, Abercrombie and Fitch's store count increased by 9 locations, or 1.2%, to 760 total retail locations in the most recently reported quarter.
Over the last two years, the company has only opened a few new stores, averaging 1.9% annual growth in new locations. This sluggish pace lags the broader sector. A flat store base means that revenue growth must come from increased e-commerce sales or higher foot traffic and sales per customer at existing stores.
Same-Store SalesAbercrombie and Fitch has generated solid demand for its products over the last two years. On average, the company's same-store sales have grown by a healthy 10.7% year on year. Given its flat store count over the same period, this performance stems from increased foot traffic at existing stores or higher e-commerce sales as the company shifts demand from in-store to online.
In the latest quarter, Abercrombie and Fitch's same-store sales rose 16% year on year.
Key Takeaways from Abercrombie and Fitch's Q3 Results Sporting a market capitalization of $3.64 billion, Abercrombie and Fitch is among smaller companies, but its more than $649.5 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
We were impressed by how significantly Abercrombie and Fitch blew past analysts' same-store sales, revenue, gross margin, and EPS expectations this quarter. Guidance for the full year was raised across the board. Zooming out, we think this was a great quarter that shareholders will appreciate. The market was likely expecting more, however, and the stock is down 4.3% after reporting, trading at $69.15 per share.
The author has no position in any of the stocks mentioned in this report.
