After years of underperformance, shares of retail company Abercrombie & Fitch (ANF) have been on an absolute tear in the ongoing bull market, rising over 520% since the start of 2023. Despite its outsized gains, ANF stock is down 26% from its 52-week high, valuing the company at a market cap of $7.54 billion.
After its recent earnings report, let’s see if you should invest in Abercrombie & Fitch stock.
How Did Abercrombie & Fitch Perform in Q2?
In fiscal Q2 of 2024 (ended in July), Abercrombie & Fitch reported revenue of $1.13 billion and earnings per share of $2.50, compared to consensus estimates of $1.10 billion and $2.22 per share, respectively. While sales rose 21%, its net income more than doubled from $57 million, or $1.10 per share, in the year-ago period. Strong summer sales and back-to-school revenue helped the company’s same-store sales rise 18% year over year in Q2.
Investors have been excited about Abercrombie’s accelerating top-line growth, which increased from a rate of 16% last year. However, despite strong sales in the first half of fiscal 2024, Abercrombie’s full-year outlook indicated a slower pace of growth for the remainder of the year, sending the stock lower.
Additionally, CEO Fran Horowitz warned shareholders of an uncertain economy and sluggish consumer spending, which may weigh on the company's revenue numbers in the near term.
“We delivered a strong first half of the year, and we are increasing our full-year outlook. Although we continue to operate in an increasingly uncertain environment, we remain steadfast in executing our global playbook and maintaining discipline over inventory and expenses,” said Horowitz.
What's Next for Abercrombie & Fitch?
In the current quarter, Abercrombie & Fitch expects sales to rise by a low double-digit percentage, and raised its full-year sales guidance from 10% growth to an increase of 12% and 13%. One fewer week of selling in fiscal 2024 relative to fiscal 2023 will negatively impact revenue by $80 million, or a sizeable 5.5 percentage points, during the holiday quarter, and by $50 million, or 1.2 percentage points, for the full year.
In addition to improving the brand image, the company’s focus on expanding international sales has increased the top line in the last few quarters. Now, Abercrombie & Fitch expects brands such as Hollister and Abercrombie Kids to drive higher international growth. In Q2, Hollister sales were up 17%, with comparable sales rising by 15%. Moreover, sales originating from EMEA (Europe, Middle East, and Africa) climbed 16% year over year.
Last month, Abercrombie announced a collaboration with Haddad Brands, a licensor of children’s clothing. The partnership will create a new distribution channel for Abercrombie Kids and expand the product line to include other categories.
What's the Forecast for ANF Stock?
Despite its stellar returns, ANF stock trades at a forward price-to-earnings multiple of 14.26x, which is cheap, given that adjusted earnings are forecast to expand from $6.28 per share in fiscal 2024 to $10.23 per share in 2025 and $10.51 in 2026.
Abercrombie's earnings growth has also translated to strong free cash flows. In the last 12 months, its free cash flow stood at $547 million, up from $181 million in fiscal 2022.
Out of eight analysts covering ANF stock, four recommend “strong buy” and four recommend “hold,” for a consensus rating of “moderate buy.” The average target price for the retail stock is $188.17, indicating an upside potential of over 31.6% from current levels.
