ANF: Abercrombie & Fitch

By William Trent, CFA of Stock Market Beat

Its a good thing Mid Cap Watch List and Large Cap Watch List member Abercrombie & Fitch’s (ANF) management won’t have to worry about claims they breached their fiduciary duties, because they’re going to be busy explaining their outlook to investors for a couple of days. according to the company, here are its Fourth Quarter Highlights: Total comparable store sales declining 3% hardly seems a highlight – particularly since the fourth quarter and full year benefitted from an extra week of sales compared to the prior year, but we’ll go along with it as the results pretty much exactly matched expectations – as well they should given the fact that the monthly sales reports should have steered analysts in pretty much the right direction. We admire Abercrombie for not dumping these progress reports while the going is tough.

• Total Company net sales increased 18% to $1.139 billion; comparable store sales declined 3%, versus a 28% increase for the fourth quarter of Fiscal 2005
• Abercrombie & Fitch net sales increased 6% to $504.0 million; Abercrombie & Fitch comparable store sales decreased 6%, versus an 18% increase for the fourth quarter of Fiscal 2005
• abercrombie net sales increased 19% to $144.5 million; abercrombie comparable store sales increased 2%, versus a 59% increase for the fourth quarter of Fiscal 2005
• Hollister Co. net sales increased 33% to $476.8 million; Hollister Co. comparable store sales were flat to last year, versus a 34% increase for the fourth quarter of Fiscal 2005
• RUEHL net sales increased 89% to $13.4 million; RUEHL comparable store sales increased 6%, versus an 18% increase for the fourth quarter of Fiscal 2005
• Net income for the fourth quarter increased 20% to $198.2 million from $164.6 million in Fiscal 2005
• Net income per diluted share increased 19% to $2.14 in the fourth quarter of Fiscal 2006 from $1.80 in Fiscal 2005

So, since the analysts were able to pinpoint revenue and earnings with laser-like accuracy, it must be the guidance that is sending the shares down after hours:

The Company expects net income per diluted share for the first half of Fiscal 2007 to be in the range of $1.47 to $1.52, representing between 10% and 13% earnings growth over the first half of Fiscal 2006. Due to the impact of the Company’s London pre-opening store costs, along with the difficult comparisons to last year’s tax rate favorability, diluted earnings per share growth in the first quarter of 2007 is expected to be in the mid-single digit range. The low end of the earnings guidance reflects a flat comparable store sales scenario for the first half of Fiscal 2007.

Consensus estimates called for low double-digit EPS growth in the first quarter rather than mid-single digit.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Landstar (LSTR) put options; Plantronics (PLT) put options;

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