Up 5x Over The Last Twelve Months, Where Is Abercrombie & Fitch Stock Headed?

-9.90%
Downside
173
Market
156
Trefis
ANF: Abercrombie & Fitch logo
ANF
Abercrombie & Fitch

Note: ANF’s FY’23 ended on February 3, 2024.

After almost a 5x growth in the last twelve months (and a 45% rise YTD), at the current price of around $130 per share, we believe Abercrombie & Fitch’s stock (NYSE: ANF), a specialty retailer selling casual clothing and footwear – is fairly priced. ANF stock has increased from around $26 to a whopping $130 over the last year, outperforming the broader indices, with the S&P growing about 30% over the same period. The fiscal year 2023 began with low expectations for the retailer. It was only expected that net sales would grow by 1% to 3% year-over-year (y-o-y) in FY’23. However, the business has exceeded those expectations in a big way. Abercrombie’s FY’23 earnings are significantly higher than expected at $6.22 per share compared to mere 5 cents in FY’22. Its operating margin grew 2.4% in FY’22 to 11.5% in FY’23. The gains have come as ANF reported stellar results in its high-margin namesake unit and better-than-expected momentum in its Hollister brand. Also, lower promotional activity elsewhere due to a more conservative inventory profile helped the stock gains. In light of this, we believe the gains realized by the stock have been well deserved. 

ANF stock has seen extremely strong gains of 525% from levels of $20 in early January 2021 to around $126 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. However, the increase in ANF stock has been far from consistent. Returns for the stock were 71% in 2021, -34% in 2022, and 285% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that ANF underperformed the S&P in 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ANF face a similar situation as it did in 2022 and underperform the S&P over the next 12 months – or will it see continued  strength?

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In the crucial holiday quarter, ANF managed to grow sales by a strong 21% year-over-year (y-o-y) to $1.5 billion, driven by particular strength in its Abercrombie brand. An additional week in FY’23 benefited Q4 net sales by approximately $50 million. Comparable sales across the company gained 16%, led by a 28% gain for the retailer’s namesake brand, while Hollister saw a 6% increase. In terms of revenue, Hollister saw 9% gains to $698 million in Q4. In contrast, the Abercrombie brand produced most of the revenue increase (up 35% y-o-y to $755 million), thanks to its strong student demographic and strong growth in its women’s business. In addition, the company’s net income soared, with earnings more than tripling from year-ago levels to $2.97 per share in Q4. It is worth mentioning that while Abercrombie continued its impressive multi-quarter growth trend, Hollister delivered a third consecutive quarter of sales growth. The parent brand has closed on the Hollister brand as the biggest revenue generator for the first time in FY’23. The company sees full-year net sales growth of 4% to 6% in FY’24.

We have revised ANF’s valuation to $127 per share, based on a $7.68 expected adjusted EPS and a 16.6x P/E multiple for the fiscal year 2024 –  almost in line with the current market price. We forecast ANF’s Revenues to be around $4.5 billion for the fiscal year 2024, up 6% y-o-y.

It is also helpful to see how its peers stack up. Check out how ANF’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Mar 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 ANF Return 2% 48% 990%
 S&P 500 Return 0% 7% 129%
 Trefis Reinforced Value Portfolio -2% 3% 630%

[1] Returns as of 3/19/2024
[2] Cumulative total returns since the end of 2016

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