Will Abercrombie’s Stock Trade Higher Following Q1 Results?

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150
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127
Trefis
ANF: Abercrombie & Fitch logo
ANF
Abercrombie & Fitch

Note: ANF’s FY’22 ended on January 28, 2023.

Abercrombie & Fitch (NYSE: ANF), a specialty retailer selling casual clothing and footwear, is scheduled to report its fiscal first-quarter results on Wednesday, May 24. We expect ANF stock to likely trade higher with revenues and earnings beating market expectations. The retailer did see meaningful gross margin compression of 540 basis points to 56.9% in 2022, driven by higher product/cotton costs and inventory reserves. While its average unit retail (AUR) improved over 2021 levels and remains well above 2019, the growth was not enough to offset the higher costs. Also, the company saw a lack of progress in digital sales as they fell from 47% in 2021 to 44% in 2022. That said, Hollister still faces some significant challenges and its namesake brand still has too much square footage in undesirable locations. In order for the company to succeed in the longer term, it will need to right-size its inventory and maximize same-store sales.

ANF provided a detailed 2023 outlook, forecasting a 1% to 3% y-o-y revenue increase from $3.7 billion in 2022 – with the Abercrombie brand leading the growth amid a cautiously optimistic demand environment. Geographically, management anticipates the U.S. to continue to outperform international business and forecasts the full-year operating margin to be in the range of 4% to 5%. Management also expects about 200 basis point margin improvements from a net benefit in product costs. The retailer expects growth to be weighted to the second half of the year, driven primarily by the inclusion of a 53rd week for reporting purposes.

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Our forecast indicates that ANF’s valuation is around $25 a share, which is nearly 9% higher than the current market price. Look at our interactive dashboard analysis on ANF‘s Earnings Preview: What To Expect in Q1? for more details.

(1) Revenues expected to come slightly ahead of consensus estimates

Trefis estimates ANF’s Q1 2023 revenues to be around $817 Mil, slightly ahead of the consensus estimate. In Q4 2022, ANF managed to grow sales by 3% year-over-year (y-o-y) to $1.2 billion. Hollister, the largest brand by revenue within the portfolio, saw sales fall 4% y-o-y. In contrast, the Abercrombie brand saw a 14% revenue increase, thanks to its strong student demographic and the women’s business achieving its highest quarterly sales ever. With the parent brand closing in on Hollister as the biggest revenue generator, the sales mix is undergoing a noticeable shift.

2) EPS likely to beat consensus estimates

ANF’s Q1 2023 earnings per share (EPS) is expected to come in at a loss of 4 cents per Trefis analysis, in line with the consensus estimate. The company’s adjusted earnings came in at 81 cents in Q1, compared to $1.14 in the prior-year quarter – largely due to rising costs.

(3) Stock price estimate higher than the current market price

Going by our Abercrombie & Fitch’s Valuation, with an earnings per share (EPS) estimate of around $1.50 and a P/E multiple of 16.7x in fiscal 2023, this translates into a price of $25, which is 9% higher than the current market price.

It is helpful to see how its peers stack up. ANF Peers shows how Abercrombie & Fitch compares against its peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a high-performance portfolio with a low downside instead? Here’s a reinforced value portfolio that has beaten the market consistently while limiting losses during periods of sharp market declines.

Returns May 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 ANF Return -3% -1% 90%
 S&P 500 Return 1% 9% 87%
 Trefis Multi-Strategy Portfolio 1% 10% 247%

[1] Month-to-date and year-to-date as of 5/22/2023
[2] Cumulative total returns since the end of 2016

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