Can Solid Holiday Show Drive Abercrombie (ANF) Q4 Earnings?

Abercrombie & Fitch Co. (NYSE:ANF) is slated to release fourth-quarter fiscal 2017 results on Mar 7. The question lingering in investors’ minds is, whether this specialty retailer of premium, high-quality casual apparel will be able to deliver a positive earnings surprise in the to-be-reported quarter.

The company’s bottom line has surpassed the Zacks Consensus Estimate in the last two quarters, with an average beat of 17.8% in the trailing four. Let’s see how things are shaping up prior to this announcement.

What to Expect

The Zacks Consensus Estimate for the quarter under review is pegged at $1.13 per share, reflecting year-over-year growth of 59.2%. Further, the estimate has been moving up in the past 30 days. Further, analysts polled by Zacks expect revenues of $1.17 billion, up 12.8% from fourth-quarter fiscal 2016.

Moreover, Abercrombie’s shares have rallied 17.2% in the past three months, outperforming the industry’s gain of 2.5%. The recent surge in share price is attributed to the company’s robust holiday sales and the resulting favorable outlook for the fourth quarter.

Factors at Play

Abercrombie & Fitch witnessed splendid performance across all its channels and brands during this holiday season. Results were driven by continued strength in Hollister brand and marked the improvement of its namesake brand. Consequently, the company anticipates its namesake brand to deliver positive comps for the fourth quarter.

Following the spectacular holiday season, the company raised its fourth-quarter fiscal 2017 guidance. It expects fourth-quarter comps to increase high-single digits versus low-single digits increase projected earlier. Sales growth is anticipated in the low-teens range against the previously forecasted mid- to high-single-digit range. Notably, sales guidance for the quarter includes gains from the 53rd week and changes in foreign currency rates.

Moreover, the company has been under the spotlight for its robust strategic capital investments, cost-saving efforts, loyalty and marketing programs. It has been implementing several steps to spur the business forward. Additionally, it has shifted focus to closing its underperforming U.S. chain stores in order to drive top-line growth, while enhancing profitability.

However, Abercrombie has been witnessing strained margins for a few quarters now, which is likely to continue in the fourth quarter. Going forward, gross margin is likely to be pressured by higher average unit retail due to a competitive market environment.

Though the holiday season results reflect some improvement at its namesake brand, we believe, a full turnaround of the brand is still away.

What the Zacks Model Unveils?

Our proven model does not show that Abercrombie is likely to beat earnings estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Abercrombie has an Earnings ESP of -5.42%. Although its Zacks Rank #3 increases the predictive power of ESP, the stock’s negative ESP makes earnings prediction difficult.

Stocks With Favorable Combination

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

American Eagle Outfitters Inc. (NYSE:AEO) has an Earnings ESP of +0.53% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ross Stores, Inc. (NASDAQ:ROST) has an Earnings ESP of +1.37% and a Zacks Rank #2.

Dollar Tree, Inc. (NASDAQ:DLTR) has an Earnings ESP of +1.41% and a Zacks Rank #2.

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Abercrombie & Fitch Company (ANF): Free Stock Analysis Report

American Eagle Outfitters, Inc. (AEO): Free Stock Analysis Report

Dollar Tree, Inc. (DLTR): Free Stock Analysis Report

Ross Stores, Inc. (ROST): Free Stock Analysis Report

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