Abercrombie & Fitch Co (ANF) Reports Stellar Third Quarter Results with Net Sales Up 20%

Operating Margin Expands Significantly as Company Raises Full-Year Outlook

  • Net sales increased by 20% year-over-year, with a notable 30% growth in Abercrombie brands.
  • Operating margin improved to 13.1%, a significant expansion from the previous year's third quarter.
  • Net income per diluted share rose to $1.83, compared to a net loss per diluted share of $0.04 in the same quarter last year.
  • Abercrombie & Fitch Co (ANF) enhances full-year guidance, expecting continued growth and profitability.
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On November 21, 2023, Abercrombie & Fitch Co (ANF, Financial) released its 8-K filing, announcing a robust performance for the third quarter ended October 28, 2023. The company achieved a 20% increase in net sales, reaching $1.1 billion, and a comparable sales growth of 16%, compared to the same period last year. Abercrombie brands led the charge with a 30% increase, while Hollister brands also saw a solid 11% growth.

Financial Highlights and Performance Analysis

Abercrombie & Fitch Co (ANF, Financial) reported a gross profit rate of 64.9%, which is approximately 570 basis points higher than the previous year. This improvement was primarily driven by a 250 basis point benefit from year-over-year average unit retail (AUR) growth, around 200 basis points from lower freight costs, and roughly 200 basis points in reduced inventory write-downs. However, these benefits were partially offset by an 80 basis point increase in raw material costs.

Operating expenses, excluding other operating loss, net, increased by $42 million or 8%, mainly due to higher incentive compensation, inflation, and investments in marketing and technology. Nevertheless, operating expense as a percentage of sales decreased to 51.7% from 57.3% last year, reflecting operating leverage.

The company's operating income stood at $138 million on a reported basis, a significant rise from $18 million and $21 million last year, on a reported and adjusted non-GAAP basis, respectively. Net income per diluted share was $1.83 on a reported basis, a stark improvement from a net loss per diluted share of $0.04 and net income per diluted share of $0.01 on a reported and adjusted non-GAAP basis, respectively, in the third quarter of 2022.

Financial Position, Liquidity, and Capital Allocation

As of October 28, 2023, Abercrombie & Fitch Co (ANF, Financial) had cash and equivalents of $649 million and inventories of $595 million, which is a 20% decrease compared to the same time last year. The company's liquidity, including cash and borrowing available under the ABL Facility, stood at approximately $1.0 billion, up from $617 million as of October 29, 2022.

For the year-to-date period ended October 28, 2023, net cash provided by operating activities was $350 million. The company also spent $51 million to repurchase $50 million at par value of its outstanding senior secured notes. Capital expenditures are projected to be approximately $160 million for fiscal 2023.

Outlook and Future Expectations

With confidence bolstered by year-to-date results, Abercrombie & Fitch Co (ANF, Financial) has raised its full-year outlook. The company now expects net sales growth of 12% to 14% from $3.7 billion in 2022, with an operating margin of around 10%. These projections are an improvement from the previous outlook of around 10% net sales growth and an operating margin range of 8% to 9%. The effective tax rate is anticipated to be in the low 30s.

For the fourth quarter of fiscal 2023, Abercrombie & Fitch Co (ANF, Financial) is expecting net sales growth to be up low double-digits compared to the fourth quarter of 2022, with an operating margin in the range of 12% to 14%.

The company's CEO, Fran Horowitz, expressed optimism, stating,

“Our strong third quarter results, with net sales and operating margin well-exceeding our expectations, speak to the power of our playbook working globally across our brand portfolio...Entering the important holiday season, our fiscal 2023 year-to-date results give us the confidence that we can continue to deliver for our customers and drive profitable growth.”

Investors and stakeholders can look forward to a detailed discussion of the quarterly results and outlook for the fourth quarter during the company's conference call scheduled for today at 8:30 a.m. ET.

Abercrombie & Fitch Co (ANF, Financial) continues to demonstrate resilience and adaptability in a competitive retail landscape, positioning itself for sustained growth and profitability as it moves forward with its Always Forward Plan.

Explore the complete 8-K earnings release (here) from Abercrombie & Fitch Co for further details.