Abercrombie & Fitch (ANF) is one of the best-performing stocks in the apparel segment over the past year — probably the best. The stock has risen 281% in 12 months but has given back 16% over the past month. While I certainly think the stock is trading close to its fair value, I believe the stock could see further growth as inflation cools and interest rates unwind. I’m neutral on the stock but hold it in my portfolio for the long run, as I’m hopeful, rather than confident, that the bull run will continue.
Abercrombie’s Sensational Turnaround
Abercrombie & Fitch has achieved a remarkable turnaround in fortunes by strategically rebranding and, in part, shifting its focus to female Millennials and Gen Z. Under CEO Fran Horowitz, the company has moved away from its preppy, exclusive image, instead opting for a more inclusive and quality-driven approach. This transformation involved removing the once-prominent Abercrombie logo from most clothing and enhancing product quality. This has resonated well with the target demographic.
The company has also become more inclusive, catering to a wider range of body types and preferences. The brand has expanded its size range, offering pants from size 23 to 37 and tops up to XL or XXL, depending on the style.
The company had previously come under fire for not offering sizes above a Large. At the time, then-CEO Mike Jeffries commented, “We go after the attractive, all-American kid with a great attitude and a lot of friends (…) A lot of people don’t belong [in our clothes], and they can’t belong. Are we exclusionary? Absolutely. Those companies that are in trouble are trying to target everybody: young, old, fat, skinny.”
Evidence suggests that the rebrand has actually been successful in expanding the company’s reach. According to JPMorgan (JPM) analyst Matthew Boss, the Abercrombie brand has successfully expanded its customer reach to an 18-40-year customer demographic.
Abercrombie’s Rebrand Is Paying Off
The rebrand has proven successful and lucrative, with Abercrombie reporting $4.3 billion in sales for the year ending February 2024 and comparable sales up 21% in the first quarter. The company’s inclusive strategy, reflected in the viral success of the “Sloan Pant,” has broadened its appeal, making it a favorite among Millennials and Gen Z. These efforts have not only revitalized the brand but also positioned it for sustained growth. As such, Abercrombie is inching closer to its $5 billion long-term sales target.
This success has also led to five consecutive earnings beats and seven consecutive beats on revenue. It’s a company with very strong momentum that has outperformed in a market characterized by rising inflation and rising interest rates.
A New Tailwind for Abercrombie
Cooling inflation and potential interest rate cuts could benefit Abercrombie & Fitch. As inflation eases, consumers may regain purchasing power, potentially increasing discretionary spending on apparel. Likewise, lower interest rates could stimulate economic growth, boosting consumer confidence and willingness to spend on non-essential items like fashion.
Simply put, Consumer Discretionary stocks historically outperform in low interest rate environments. As a company with an improving brand image and surging demand for its apparel, Abercrombie could be among the greatest beneficiaries of this trend. In turn, this could translate into increased sales volume and potentially higher profit margins.
Abercrombie & Fitch is in a strong financial position, with a net cash position of $678.8 million as of February 2024, despite having $222.1 million in debt. However, lower borrowing costs could also fund expansion plans.
Is There Any Value Left?
Of course, the issue for many investors is that Abercrombie & Fitch stock isn’t overly cheap. It’s currently trading at 24.1x trailing earnings and 15.8x forward earnings.
This figure is expected to fall to 15.4x in 2026 and 14.4x in 2027. As these figures suggest, earnings growth is significantly slower from 2026 onwards, leading to a medium-term price-to-earnings-to-growth (PEG) ratio of around 4x (1.0x or lower is generally seen as undervalued).
While I believe these forward estimates for 2026 could be a little cautious, especially if interest rates fall as expected, these figures don’t fill me with confidence.
Is Abercrombie & Fitch Stock a Buy, According to Analysts?
On TipRanks, ANF comes in as a Moderate Buy based on three Buys, five Holds, and zero Sell ratings assigned by analysts in the past three months. The average Abercrombie & Fitch stock price target is $175.00, implying 15.9% upside potential.
The Bottom Line on Abercrombie & Fitch Stock
Abercrombie & Fitch has undergone one of the most sensational rebrands that I’ve seen in recent years, and I’d suggest it’s hard to truly forecast how much higher this rebrand will take the stock. It’s truly a brand with momentum, and this could be aided by falling interest rates in the near and medium term. However, I’m also wary that the current forecasts don’t suggest this stock is overly cheap. That’s why I’m neutral on ANF stock for now.
