Abercrombie & Fitch Co. (ANF) 2Q17 Beat Shows Encouraging Momentum: William Blair

Analyst Sees Long-Term Benefits for A&F and Hollister Thanks to New Loyalty Program Launches


It is a great time to be an Abercrombie & Fitch Co. (NYSE:ANF) shareholder after the U.S. teen apparel retailer impressed with a second-quarter outclass yesterday, sending shares racing 17% and another 6% still today. A nice step-up in comp performance really helped the retailer soar back to pre-buyout conversations that were swirled before July 10th, when ANF management eventually caved under activist heat to ditch assets and re-purchase shares, to walk-the-confidence-talk right out of a deal.

Context is crucial, says analyst Dylan Carden of William Blair who underscores that especially following the termination of management’s dialogue regarding a buyout, it especially matters that this “quarter showed encouraging momentum, with A&F comp, in particular, moving in the right direction ahead of notable tailwinds in the back half provided by improved merchandise architecture and marketing supporting better product.”

Noting that “similar measures are having a notable impact at HoCo, which is a little over a year ahead of its sister brand in its own turnaround, with significant comp upside in the quarter easing concerns around sustainability of improvement,” the analyst believes, “Both brands should benefit longer term from newly launched loyalty programs, allowing for better customer data reads, and store refurbishments, where A&F is only in the early stages for both.”

As such, the analyst maintains an Outperform rating on ANF stock without providing a price target. (To watch Carden’s track record, click here)

In the second quarter, total comp performance improved to -1% versus the Street’s forecast of -2%, while Hollister easily overshadowed expectations bringing in 5%, outclassing consensus calling for 3%. A&F also yielded a slight beat of -7% vs. the consensus prediction of -7.6%. Furthermore, Hollister saw a spike in traffic and conversion rates aided by its expanding loyalty program, which has accelerated to 6.6 million members, and refurbishments, which now comprise 26% of its total fleet. Another key positive move from the retailer shines from the resolution of late-2016 inventory issues that indicated a breakthrough in men’s as well as women’s in the majority of categories.

As far as Carden assesses the bigger earnings picture, “Improved performance in the second quarter provides incremental comfort in the second half,” adding that Abercrombie management team is seeking a flat to even a comp boost by a hair, compared to the past guide that was angling “simply for an improvement.” Carden concludes, “Guidance also embeds flat gross margin for the second half, reversing steeper declines throughout the front half […]” finding “management confident in its $100 million savings target for the year.”

TipRanks analytics demonstrate ANF as a Hold. Of 9 analysts polled by TipRanks over the last 3 months, 2 are bullish, 5 are sidelined, while 2 bearish. The 12-month average price target stands at $11.83 representing a 5% upside over current trading levels.