Abercrombie & Fitch Co (ANF) shares are trading lower in premarket trading despite the company reporting strong second-quarter earnings that exceeded analyst expectations. Sales surged 21% year-over-year (Y/Y) to $1.134 billion, beating the analyst consensus estimate of $1.101 billion. Comparable sales also jumped 18% Y/Y, demonstrating healthy customer demand.
Adjusted earnings per share (EPS) of $2.50 surpassed the analyst consensus estimate of $2.22. Geographic sales growth was robust, with Americas sales increasing 23%, EMEA (Europe, Middle East, and Africa) growing 16%, and APAC (Asia-Pacific) sales climbing 3% Y/Y. The company’s brand performance was also encouraging, with Abercrombie brand sales rising 26% and Hollister sales improving 17% Y/Y.
The company’s profitability also improved significantly. Gross profit margin expanded by 240 basis points Y/Y to 64.9% in the quarter. Operating expenses, excluding other operating income, totaled $561 million for the quarter, with the operating expenses ratio improving to 49.4% from 53.2% last year. This resulted in a substantial increase in operating income to $176 million, compared to $90 million a year ago, with a margin expansion of 590 basis points Y/Y to 15.5%.
As of August 3, the company held $738 million in cash and equivalents, reflecting its strong financial position. The operating cash flow was $260 million for the year-to-date period ended August 3. Inventories were $540 million, compared to $493 million as of July 29, 2023.
Fran Horowitz, Chief Executive Officer, stated, “Although we continue to operate in an increasingly uncertain environment, we remain steadfast in executing our global playbook and maintaining discipline over inventory and expenses.”
Looking ahead, Abercrombie expects third-quarter net sales to grow in the low double digits year over year. The company projects an operating margin of 13% – 14%, compared to 13.1% last year.
In a vote of confidence in the company’s future prospects, Abercrombie & Fitch raised its FY24 net sales growth outlook to 12% to 13% (from around 10%) and revised the operating margin forecast to 14% – 15% from the prior view of around 14%. The company continues to expect capital expenditure of about $170 million.
Investors interested in gaining exposure to the stock can consider ETFs such as Tidal Trust II YieldMax Ultra Option Income Strategy ETF (ULTY) and Invesco Dorsey Wright Consumer Cyclicals Momentum ETF (PEZ).
Despite the strong earnings report and positive outlook, ANF shares are down 10% at $149.95 in premarket trading as of Wednesday’s last check. The market reaction suggests investors might be concerned about the company’s future growth trajectory or have other factors influencing their trading decisions.
