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Abercrombie Up 33.7% in 3 Months: What's Driving Stock?

Abercrombie & Fitch Company ANF is progressing well on its growth path, driven by strategic capital investments, cost-saving efforts along with loyalty and marketing programs. Further, its robust surprise trend, strength in Hollister, return to positive comps trend and strong direct-to-consumer (DTC) business are aiding performance. The positive effects of these elements are clearly visible in its solid stock movement and estimate revisions trend. Additionally, a VGM Score of B makes this Zacks Rank #3 (Hold) company a safe haven.

Stock Surges

Shares of Abercrombie climbed 33.7% in the last three months, outperforming the industry’s decline of 8.9%. Additionally, the stock witnessed solid growth of 14.1% after reporting better-than-expected results on Mar 7.

The company delivered earnings and sales beat in fourth-quarter fiscal 2017, marking the third straight positive earnings surprise and fourth consecutive sales beat. Further, it remains encouraged by comps performance that gained from the rise in traffic and conversion. (Read More: Abercrombie Jumps on Q4 Earnings Beat, Guides for FY18)

Favorable Estimate Revisions

Following the upbeat quarter, the company provided an encouraging view for fiscal 2018 which led to an uptrend in estimates. For fiscal 2018, both comps and sales are projected to be up in low-single digit. Top line gains from the favorable currency rates will be offset by the absence of the additional week sales in 2017.

Favorable foreign currency rate is expected to contribute nearly $50 million to sales and $15 million to operating income in fiscal 2018. Furthermore, it expects core tax rate to be in the mid-to-high 20s range, driven by the recently enacted tax reform.

Abercrombie & Fitch Company Price, Consensus and EPS Surprise

Abercrombie & Fitch Company Price, Consensus and EPS Surprise | Abercrombie & Fitch Company Quote

Consequently, the Zacks Consensus Estimate witnessed an uptrend in the last 30 days. Notably, the Zacks Consensus Estimate for fiscal 2018 and 2019 climbed substantially to 68 cents and 71 cents per share, respectively, from previous estimates of 47 cents and 60 cents.

Going forward, the company remains keen on further improving customer experience by investing in loyalty programs, stores, direct-to-consumer and omni-channel capabilities. Further, it expects to maintain the disciplined approach to expense management for driving top- and bottom-line growth. So, here is a sneak peek into the company’s initiatives which are fueling growth.

Other Catalysts

Abercrombie is making significant progress in expanding digital presence with the growth of direct-to-consumer and omni-channel capabilities. Its investments in mobile, omni-channel and fulfillment have significantly aided the growth of the direct-to-consumer business, which delivered double-digit increase in both the United States and international markets in fourth-quarter fiscal 2017.

Notably, digital engagement with consumers has been the company’s core strength. This is clear from the fact that more than 70% of the DTC traffic came from mobiles in the fourth quarter. Additionally, its investments in DTC are paying off with conversions improving 14% in the fourth quarter.

Overall, the DTC business accounted for nearly 34% of net sales in the fourth quarter, recording 18% increase in comparable sales. In fiscal 2018, the company plans to continue investing in DTC capabilities alongside bringing innovations in this channel, using customer insights and data analytics.

Additionally, Abercrombie is aggressively expanding Hollister stores in new markets. The idea is that the smaller size of operation makes it cheaper and less capital intensive compared with the namesake brand. Growth of the Hollister brand internationally could enhance its overall performance. The Hollister brand reflects persistent positive momentum from previous quarters, reaching the $2 billion mark in sales in fourth-quarter fiscal 2017.

Further, comparable store sales (comps) for the Hollister brand improved 11% in the fourth quarter as it continued to capitalize on the momentum, delivering positive comps in both the United States and international markets. Hollister is gaining from the positive customer response to product innovations, emerging categories and overall customer experience.

Not only this, the company remains focused on streamlining its store-fleet by closing underperforming stores and expanding in markets with growth potential. Store closure gives Abercrombie more flexibility in terms of cost savings, amid a tough environment. Since 2010, it closed more than 400 stores while nearly 60% of its U.S. leases are set to expire in the next two years. This provides significant flexibility to strike the right channel balance and drive efficiency with options to remodel or resize stores, renegotiate leases or close stores.

Looking for More Solid Picks, Check These

Investors can count upon some better-ranked stocks in the same industry like The Finish Line Inc. FINL, The Gap, Inc. GPS and Nordstrom, Inc. JWN, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Finish Line, with long-term earnings growth rate of 10.4%, has reported average positive earnings surprise of 2.6% in the trailing four quarters.

Gap, with long-term earnings growth rate of 8%, has delivered an average positive earnings surprise of 11.1% in the trailing four quarters.

Nordstrom, with long-term earnings growth rate of 6%, has come up with an average positive earnings surprise of 16.8% in the trailing four quarters.

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