Today’s news:
• Abercrombie & Fitch (ANF) second quarter earnings beat; stock falls on tariff worries.
• Designer Brands (DBI) second quarter earnings on target; stock rises; moves from Hold to Strong Buy.
• Guess? (GES) huge second quarter earnings beat; big price jump.
Abercrombie & Fitch (ANF – yield 5.2%) reported a second quarter loss of ($0.48) per share this morning vs. the consensus estimate of ($0.53) (January year end). Revenue of $841.1 million missed the estimate of $852.5 million. (Abercrombie is expected to earn all its fiscal year profit in the third and fourth quarters.)
CEO Fran Horowitz said, “Trends improved throughout the second quarter, enabling us to deliver constant currency revenue growth and meet our previously-issued comp and gross profit rate outlook, while continuing to tightly manage expenses. Importantly, we have had a solid start to back-to-school in the U.S. and we look forward to building on that momentum in the back half through exciting product and cohesive marketing campaigns. … In the second quarter, we delivered 26 new store experiences, closed our Hollister SoHo flagship store in NYC, realized double digit digital sales growth, continued our investments in key personalization tools, and grew our loyalty membership accounts across brands. We plan to build on these actions as we continue to lay the foundation to achieving our fiscal 2020 target.”
The company reduced their full-year sales forecast, accounting for the potential impact of increased U.S. tariffs on Chinese imports; it’s now expecting sales in the range of flat to up 2%. New tariffs that are scheduled to begin in September and October “are expected to have a direct adverse impact on cost of merchandise and gross profit of approximately $6 million for the fall season. As a reminder, in fiscal 2018 roughly 25% of the company’s merchandise received was sourced from China and imported into the U.S. and our outlook assumes this figure will be below 20% for fiscal 2019.”
Recent Wall Street projections show EPS falling 21% in 2019, then rising 59% in 2020.
Abercrombie repurchased 3.5 million shares during the quarter, with approximately 5.0 million shares remaining in the repurchase authorization.
Abercrombie & Fitch is a specialty retailer of apparel and accessories for men, women and kids. The company operates 857 stores globally. The stock fell down toward price support near $15 this morning. I anticipate ANF trading between 15-19 for several months. Buy.
Designer Brands Inc. (DBI – yield 6.4%) reported second quarter adjusted EPS of $0.48 this morning, on target with analysts’ estimates. Revenue of $877.9 million was adjusted for elimination of intersegment revenue to a net $860.2 million vs. the consensus estimate of $872.7 million.
CEO Roger Rawlins commented, “Each segment delivered what was needed this quarter, but our newest businesses really stood out, exceeding our expectations and moving us closer to the vision laid out at our Investor Day. In Canada, the transfer of successful practices at DSW in the U.S. to our Canadian banners fueled continued positive momentum in this business. We were particularly pleased with the growth in Canada of both the loyalty programs and e-commerce sales. Similarly, Camuto Group is delivering exactly what we expected giving us differentiation and bringing added excitement to our retail segments. The Camuto Group team has unveiled the DSW Spring 2020 private label offering and based on the fashion, styles and quality shown, we believe we will be in a solid position to not only see the gross margin benefit as we convert the production of our DSW private label to Camuto Group next Spring, but also to increase brand loyalty and further drive sales within our warehouse footprint.”
I encourage investors to listen to today’s earnings webcast (which I have not yet accessed). The last Designer Brands webcast that I tuned in to was one of the most interesting and exciting corporate reports that I’ve ever heard, reflecting many types of growth, innovation and success.
The company repurchased 2.7 million shares during the quarter.
Designer Brands is one of North America’s largest designers, producers and retailers of footwear and accessories. The company operates DSW Warehouse and The Shoe Company stores with over 1,000 locations in 44 U.S. states and Canada, and Camuto Group.
I’ve mentioned in the past, with regard to earnings releases, that it’s not uncommon for computer-generated news reports to pull the wrong numbers from earnings releases. That happened this morning when Reuters reported quarterly revenue of $102.9 million when the actual number was $870 million. Investors should skip early news reports when earnings results are announced, and instead go directly to the company’s press release. After all, that’s where the computer-generated news stories are acquiring their data. Best to eliminate the middleman and potential inaccuracies.
DBI is an extremely attractive stock from a quality point of view -- undervalued with a hefty dividend yield—hampered by poor price performance. I’m moving DBI from Hold to Strong Buy, anticipating DBI trading between 15-20 in the coming months. Strong Buy.
Guess?, Inc. (GES – yield 2.4%) reported strong second quarter results yesterday afternoon, sending the stock up more than 20% (to $18.50 or so) early in today’s session. Non-GAAP earnings per share (EPS) were $0.38, far above the consensus estimate of $0.29 EPS. Revenue of $683.2 million beat the expected $671.4 million estimate.
CEO Carlos Alberini commented, “I am very pleased with our second quarter financial performance, which delivered strong operating profit growth. This performance exceeded our expectations and was driven by a solid top line increase, strong margin performance and effective expense management. During the quarter we increased revenues by 6% in U.S. dollars and 9% in constant currency. Overall, our direct-to-consumer businesses, which include stores and e-commerce, performed in line with our expectations in all regions and our wholesale businesses in the Americas and Europe delivered a very strong performance compared to our expectations. Based on our second quarter performance, our strong inventory position and our expectations for the Fall and Holiday seasons, we are raising our guidance for the full year.”
Reuters reported that the company “has successfully mitigated tariff risk in China through productive negotiations with vendors, and expects minimal impact to this year from potential tariff increases.” CEO Carlos Alberini further stated, “for next year, we expect to reduce the estimated tariff risk from China production into the U.S. to only 12% of our total apparel production. We are still working on this to further reduce our dependency on China.”
Looking forward, management guided analysts lower on their third quarter EPS estimate, and raised guidance for full-year EPS to a range of $1.28-$1.36 vs. the consensus estimate of $1.26, reflecting approximately 35% profit growth vs. the prior year. (At the time of the first quarter earnings release, management lowered second quarter guidance to a range of $0.27-$0.30 EPS. I don’t know why they did that, when actual results came in so strong.)
The company plans to discuss strategic business planning with investors at the end of October.
The company repurchased 11.0 million shares of stock during the first six months of their fiscal year, at a cost of $212.6 million.
Guess? is a global apparel manufacturer, selling their products through wholesale, retail, ecommerce and licensing agreements. GES offers the best earnings growth & value opportunity of any U.S.-based apparel retailer. There’s lots of capital gain potential over the course of 3-24 months, although this week’s price surge might now put a lid on immediate additional gains. I’ll move GES to a Strong Buy recommendation on the next pullback. Buy.