Defying market expectations, Abercrombie & Fitch (ANF) has reemerged as a powerhouse in the retail sector. The lifestyle retailer has registered impressive gains of 56% year-to-date and an astounding 775% over the past five years. With four consecutive quarters of over 20% year-over-year revenue growth, soaring net profit margins, and Q2 results that beat top-and-bottom-line expectations, the company’s stellar financial performance has been a revelation.
The company’s share price has dipped recently. However, it now trades at a relative discount to industry peers at a P/E of 14.8x, making Abercrombie & Fitch an attractive option for investors seeking retail exposure with growth at a reasonable price potential.
Abercrombie Targets Key Partnerships
Abercrombie & Fitch Co. operates domestically and internationally through its subsidiaries. The company retails a variety of apparel, personal care items, and accessories for all genders and age groups under multiple brand labels, including Abercrombie & Fitch, Abercrombie Kids, Hollister, and Gilly Hicks.
Abercrombie has successfully engaged in strategic partnerships with entities like the National Football League, where it is entering a third season of collaboration that includes licensed graphic apparel for all 32 teams and content creation and social media collaborations with NFL players. More recently, the company announced the launch of the Collegiate Graphics Shop, which features vintage-inspired university logos representing over 30 universities across the United States. The launch coincides with the back-to-school and fall sports seasons and is responding to market research indicating customers’ desire for trendy, school-spirited apparel.
Abercrombie & Fitch’s Recent Financial Results & Outlook
The company recently reported second-quarter results for 2024. Revenue of $1.13 billion showed a 21% year-over-year increase while exceeding analysts’ expectations by $40 million. The gross profit rate reached 64.9%, a notable jump from last year. The operating expense, minus other operating income, was $561 million. The operating income reported was $176 million, a significant increase from $90 million last year. Finally, the earnings per share (EPS) increased to $2.50 from $1.10 last year while surpassing expectations by $0.22.
As of the quarter’s end, the company reported cash and equivalents of $738 million and inventories valued at $540 million. The company has redeemed its 8.75% senior secured notes due July 2025 using cash on hand, with no long-term gross borrowings remaining. Available borrowing under the ABL Facility is $430 million, contributing to roughly $1.2 billion in overall liquidity.
Following second-quarter results, ANF’s management has revised its previous guidance and expects 2024 net sales growth to be between 12% and 13%, up from the former guidance of 10%. The operating margin is anticipated to range between 14% and 15%, improving from the earlier outlook of 14%.
What Is the Price Target for ANF Stock?
The stock has been upward trending, climbing over 145% in the past year. It trades near the middle of its 52-week price range of $49.24 – $196.99 and shows negative price momentum, trading below its 20-day (151.54) and 50-day (154.72) moving averages. The P/E ratio of 14.60x is well below the Apparel Retail industry average of 26.18, suggesting the shares are relatively undervalued.
Analysts following the company have mostly been constructive about the stock. Jefferies analyst Corey Tarlowe, a five-star analyst according to Tipranks’ ratings, recently reiterated a Buy rating on the shares and raised the price target from $215 to $220, noting several top-line drivers with the potential to increase productivity and expand operating margins.
Based on eight analysts’ recent recommendations and price targets, Abercrombie & Fitch is rated a Moderate Buy overall. The average price target for ANF stock is $188.86, representing a potential 44.25% upside from current levels.
Final Analysis on ANF
Abercrombie & Fitch has become a force in the retail sector with its impressive growth and extraordinary financial results. Following its strong Q2 results, the company’s revised outlook signals a promising future. Although the company’s share price has recently dropped, it now trades at a relative discount to industry rivals, making Abercrombie & Fitch an appealing choice for investors seeking growth and retail exposure at a reasonable price.
