Abercrombie shares soar on surprise 3Q beat
Investors scrambled to get a piece of Abercrombie & Fitch after the teen retailer blew past Wall Street expectations for its third quarter and then raised its guidance for the entire year. It was enough to pull almost the entire sector with it, even as major indexes fell Wednesday.
THE SPARK: The company reported a 41 percent increase in its net income on stronger sales around the globe.
Abercrombie reported earnings of 87 cents per share for the period, far exceeding the 60 cents per share that analysts polled by FactSet had forecast. Its revenue increased 8 percent to $1.17 billion, beating market expectations of $1.11 billion.
It raised its full-year earnings forecast to $2.85 to $3 per share, up from its prior guidance of $2.50 to $2.75 per share. This also blew away market expectations, which were forecasting earnings of $2.49 per share.
THE BIG PICTURE: The unexpected results were welcome news as the company has struggled recently due to weak sales. A shift in fashion trends, tough competition and a difficult economy that has left families with less to spend and many young people unemployed has weighed on the retailer.
Abercrombie & Fitch Co. has tried to manage its expenses more effectively and has been reacting more quickly to runway trends. The latest results show that its efforts are gaining traction.
THE ANALYSIS: Jefferies analyst Randal Konik called the quarter's results "stellar," reiterated his buy rating on the stock and raised his price target on the shares to $60 from $50.
Konik expects sales and margin trends to stick for the company and said that once again, Abercrombie & Fitch is the cool kid on the block.
The company was upgraded by Janney Montgomery Scott, William Blair, Credit Agricole and Nomura.
SHARE ACTION: Shares soared $8.99, nearly 29 percent, to $40.17 by early afternoon. Its shares have not closed at a level this high since May. Prior to today, its stock had lost about 40 percent of their value since May.