Up 70% Since Beginning of This Year, Will Abercrombie’s Strong Run Continue Following Q1 Results?

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ANF: Abercrombie & Fitch logo
ANF
Abercrombie & Fitch

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

Abercrombie & Fitch (NYSE: ANF), a specialty retailer selling casual clothing and footwear, is scheduled to report its fiscal first-quarter results on Wednesday, May 29. We expect ANF stock to likely trade lower with revenues and earnings missing market expectations. ANF stock has increased 72% since the beginning of this year, outperforming the broader indices, with the S&P growing 11% over the same period. Notably, ANF’s peer American Eagle Outfitters (NYSE: AEO) has seen its stock rise only 9% over the same period. The fiscal year 2023 began with low expectations for ANF. 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 were significantly higher than expected at $6.22 per share compared to mere 5 cents in FY’22. Its operating margin grew from 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 gain. This dramatic improvement has led to ANF stock looking fully priced right now with a P/E of 24.1x, particularly when management has guided for only a 4-6% sales increase this year. Given the higher interest rates and apparel industry risks, ANF stock could see moderate declines in the near term.

ANF stock has seen extremely strong gains of 650% from levels of $20 in early January 2021 to around $150 now, vs. an increase of about 40% 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 a strong jump?

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Our forecast indicates that ANF’s valuation is around $127 a share, which is nearly 16% lower 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 in slightly below consensus estimates

Trefis estimates ANF’s Q1 2024 revenues to be around $957 Mil, slightly below the consensus estimate. 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. 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.

2) EPS likely to miss consensus estimates

ANF’s Q1 2024 earnings per share (EPS) is expected to come in at $1.69 per Trefis analysis, marginally missing the consensus estimate. The company’s net income soared, with earnings more than tripling from year-ago levels to $2.97 per share in Q4.

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

Going by our Abercrombie & Fitch’s Valuation, with an earnings per share (EPS) estimate of around $7.68 and a P/E multiple of 16.6x in fiscal 2024, this translates into a price of $127, which is 16% lower 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.

Returns May 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 ANF Return 25% 72% 1166%
 S&P 500 Return 5% 11% 137%
 Trefis Reinforced Value Portfolio 7% 7% 657%

[1] Returns as of 5/28/2024
[2] Cumulative total returns since the end of 2016

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