3 retail stocks climbing before earnings

Expectations are high for Michael Kors, Fossil and Abercrombie, even after recent gains.

By InvestorPlace Jan 30, 2013 3:57PM

Teen girl shopping copyright Vicky Kasala, Photodisc, Getty ImagesBy Alyssa Oursler


iplogoAs we head deeper into earnings season, a slew of retail reports is right around the corner. 


The bulk of the sector -- including Macy's (M) Target (TGT), TJX (TJX), Gap (GPS) and more -- report in late February, while some stragglers like American Eagle (AEO), Express (EXPR) and Ross Stores (ROST) won't release numbers until March.


Three big names, though, will lead the way this quarter. Michael Kors (KORS), Fossil (FOSL) and Abercrombie & Fitch (ANF) all plan to release their most recent results in mid-February, with the first two scheduled to report on Feb. 12 and Abercrombie slated for Feb. 13.


That's not all. These three have been moving steadily upwards as they inch closer to their release dates. With that in mind, let's take a closer look at each one:


Michael Kors

The S&P 500 might be sitting around a five-year high, but Michael Kors isn't impressed. The luxury stock has more than doubled the S&P's 7% climb over the last month with a nearly 18% increase.


Oh yeah, and since it hit the market in December 2011, KORS has gained nearly 140%.



Prior to its recent climb, the stock moved sideways for several months, getting bumps the two times it raised its full-year outlook in the final half of 2012, but not maintaining those gains until this run. It increased full-year EPS from $1.12 to $1.34 in September and then raised it to a range of $1.48 to $1.50 per share in November.


Kors won't be reporting full-year numbers until May, though, and its Q3 outlook isn't quite as strong. The good news is that analysts have high hopes, as the Q3 EPS consensus estimate has climbed from 39 cents as of 90 days ago to 40 cents as of 60 days ago, before settling at 41 cents. That's an 86% year-over-year increase that analysts expect in earnings.


The bad news is that Kors itself has issued guidance for EPS of only 37 cents to 39 cents. With that in mind, such a high bar from analysts could be a double-edged sword.


KORS has blown away estimates historically, beating EPS expectations by 23%, 60%, 37% and 122% over the last four quarters. Just as Apple (AAPL) crumbled with eye-popping numbers that were good, but not good enough, Kors best deliver and maybe even again exceed analyst's expectations ... or else.


Fossil

Specialty retailer Fossil has also been on a tear, recording a 22% climb over the last month -- nearly four time the S&P 500's gains -- and rebounding handily from the tumble in November that came thanks to worse-than-expected Q3 sales. That makes for 50% gains since the stock suffered a brutal 40% drop in May.



Analysts' EPS estimates have been relatively steady heading into earnings and currently sit at $2.27, while the upper end of the company's range sits at $2.29 -- a 23% year-over-year increase. For the full-year, analysts expect to see a similarly solid 18% gain in earnings, while quarterly and full-year revenue are also expected to enjoy double-digit gains.


Fossil has beaten expectations every quarter so far this year, including respectable 10% and 19% surprises on the last two quarters. Analysts expectations are pretty reasonable, so it seems quite possible that Fossil could do it again.


Abercrombie & Fitch

Last will be teen retailer Abercrombie & Fitch. Things were looking pretty ugly last year as the company shuttered hundreds of stores and its stock plummeted amid shrinking earnings. Since then, it's pulled off quite a comeback. From mid-November until now, shares have increased 21% -- more than double the S&P 500's double-digit gains -- and at nearly $50, it's only a few bucks from ANF's 52-week high.



The mid-November bump -- a 34% one-day pop -- came thanks to a better-than-expected quarter coupled with increased full-year guidance. The company announced that it was expecting diluted EPS of $2.85 to $3 for fiscal 2012, blowing away analyst expectations for an EPS of $2.52. It also beat expectations for the third quarter by nearly 50%.


Keep in mind, however, that this "raised guidance" is still far below ANF's earlier EPS guidance of $3.50 to $3.75 at the start of 2012 and expectations of $4.75 back in 2011.


Analysts have been revising their Q4 EPS estimates in conjunction with the higher full-year expectations. The consensus 90 days ago was $1.70; 60 days ago it climbed to $1.92. It increased by a penny over the next month, and then jumped to $1.95 in the last week alone.


The climb heading into earnings could mean that solid numbers are already built into the share price -- or could leave plenty of room on the downside if the company doesn't live up to the high expectations. Abercrombie and its investors, though, are undoubtedly hoping that the upcoming earnings will be enough to keep up or add to the momentum ANF is building.


Keep an eye on these three stocks as their week in the sun approaches.


As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.


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