Citigroup Upgrades Abercrombie & Fitch to Buy Rating

Abercrombie & Fitch (NYSE:ANF) reported fourth-quarter results that slightly exceeded analyst expectations, yet its shares tumbled more than 12% intra-day today as its first-quarter guidance came in weaker than anticipated.

The apparel retailer posted adjusted earnings per share (EPS) of $3.57, just ahead of the consensus estimate of $3.56. Revenue rose 9% year-over-year to $1.58 billion, surpassing analyst projections of $1.56 billion. Comparable sales saw a robust 14% increase during the quarter.

For the full fiscal year 2024, Abercrombie delivered strong growth, with net sales rising 16% to $4.95 billion, supported by a 17% jump in comparable sales. The company also saw a notable improvement in profitability, with its operating margin expanding to 15.0%, up 370 basis points from the previous year.

Despite these positive results, the company’s first-quarter fiscal 2025 outlook disappointed investors. Abercrombie forecasts Q1 EPS between $1.25 and $1.45, significantly below the consensus estimate of $2.01. The company expects net sales growth between 4% and 6% for the quarter.

For the full fiscal year 2025, Abercrombie anticipates net sales growth of 3% to 5% and EPS in the range of $10.40 to $11.40, with the midpoint slightly trailing analyst expectations of $11.30.

Abercrombie & Fitch Co. (NYSE:ANF) is a well-known American retailer specializing in casual wear. The company has a strong presence in the fashion industry, with a focus on brand expansion and appealing product assortments. ANF competes with other major retailers like American Eagle and Hollister. The company is set to release its quarterly earnings on March 5, 2025, with Wall Street estimating earnings per share (EPS) of $3.49 and revenue of approximately $1.57 billion.

The anticipated strong fourth-quarter results for fiscal 2024 are largely due to a successful holiday season, as highlighted by Zacks. ANF's growth is driven by strategic brand expansion and engaging marketing strategies. The Zacks Consensus Estimate projects fourth-quarter revenues at $1.56 billion, a 7.6% increase from the previous year. This growth reflects the company's ability to attract customers with its appealing product offerings.

Earnings per share are expected to rise by 17.5% to $3.49, compared to $2.97 in the same quarter last year. Despite a slight downward revision in earnings estimates over the past week, ANF has consistently surpassed earnings expectations, with an average surprise of 14.8% over the last four quarters. This track record suggests that the company may once again exceed consensus estimates, potentially boosting its stock price.

ANF's financial metrics indicate a solid market valuation. The company's price-to-earnings (P/E) ratio is approximately 9.17, while the price-to-sales ratio stands at about 1.01. These figures suggest that investors are paying a reasonable amount for the company's earnings and sales. Additionally, the enterprise value to sales ratio is around 1.07, reflecting the company's total valuation relative to its sales.

The company's financial health is further supported by an enterprise value to operating cash flow ratio of approximately 7.27, indicating efficient conversion of operating cash flow into enterprise value. ANF's debt-to-equity ratio is approximately 0.76, showing a moderate level of debt relative to equity. With a current ratio of about 1.40, the company has a good level of liquidity to cover its short-term liabilities, ensuring financial stability.

Abercrombie & Fitch Co. (NYSE:ANF) is a well-known American retailer specializing in casual wear. The company operates under several brands, including Abercrombie & Fitch, Abercrombie Kids, and Hollister Co. It competes with other retail giants like American Eagle Outfitters and Gap Inc. ANF is set to release its third-quarter fiscal 2024 earnings on November 26, 2024.

Wall Street anticipates ANF's earnings per share (EPS) to be $2.37, with projected revenues of approximately $1.18 billion. The Zacks Consensus Estimate closely aligns with these figures, forecasting revenues of $1.2 billion, an 11.8% increase from the previous year. The consensus EPS is $2.32, reflecting a 26.8% rise from last year's $1.83 per share.

In the previous quarter, ANF exceeded earnings expectations by 16.8%, and over the last four quarters, it has consistently delivered an average earnings surprise of 28%. This trend suggests a strong possibility of another earnings beat, as highlighted by Zacks Investment Research. Such performance is often driven by strong demand for its products and improved profit margins.

The company's financial metrics provide further insight into its performance. ANF has a price-to-earnings (P/E) ratio of 15.53, indicating how the market values its earnings. Its price-to-sales ratio is 1.66, showing investor willingness to pay per dollar of sales. The enterprise value to sales ratio is 1.70, reflecting the company's total valuation relative to its sales.

ANF's financial health is also evident in its low debt-to-equity ratio of 0.17, suggesting conservative debt usage. The current ratio of 1.44 indicates the company's ability to cover short-term liabilities with short-term assets. These metrics, combined with an earnings yield of 6.44%, highlight ANF's strong financial position ahead of its earnings release.

Shares of Abercrombie & Fitch (NYSE:ANF) gained more than 9% on Friday after JPMorgan Chase added the retailer to its Positive Catalyst Watch list, signaling confidence in the stock's near-term potential.

The bank cited increased momentum in both Abercrombie's namesake brand and its Hollister division, particularly during the key back-to-school shopping period. Promotional activity has also been more favorable, contributing to the company’s performance across various product categories, demographics, and regions as it approaches third-quarter earnings, despite industry concerns about a weather-related slowdown.

The retailer's reliance on West Coast ports for imports has helped it mitigate supply chain disruptions caused by a recent strike at East and Gulf Coast ports. JPMorgan highlighted that Abercrombie's supply chain teams managed to navigate the challenges with advanced visibility into the situation, as dockworkers and carriers recently reached a deal to suspend the strike.

Abercrombie & Fitch (NYSE:ANF) posted strong second-quarter results on Wednesday, beating Wall Street expectations for both earnings and revenue. However, despite the upbeat performance, its shares dropped over 16% intra-day following the announcement.

The apparel retailer reported adjusted earnings per share of $2.50, surpassing the projected $2.19. Revenue climbed 21% year-over-year to $1.13 billion, ahead of the $1.1 billion consensus. Comparable sales surged 18% in the quarter, with Abercrombie brands growing by 26% and Hollister brands increasing by 17%. The company's gross profit margin also expanded by 240 basis points, reaching 64.9%.

CEO Fran Horowitz credited the strong execution for the better-than-expected sales growth and profitability in Q2.

For the full fiscal year 2024, Abercrombie raised its net sales growth forecast to 12% to 13%, up from the previous guidance of around 10%, and increased its operating margin outlook to a range of 14% to 15%. Looking ahead, the company anticipates low double-digit sales growth for the third quarter compared to Q3 2023's $935 million in revenue.

Citi analysts maintained a Neutral rating and a $190 price target on Abercrombie & Fitch (NYSE:ANF), expressing optimism for another strong earnings beat in the company's upcoming Q2 report, scheduled on August 28.

The analysts anticipate solid results for both the Abercrombie and Hollister brands, with double-digit comp growth, improved gross margins, and an increase in average unit retail (AUR) due to reduced promotional activity. The analysts expect the company to raise its full-year 2024 sales guidance from 10% to 12%, potentially pushing EPS guidance above $10, surpassing consensus estimates.

Despite recent declines in stock price tied to weaker third-party data in July, the analysts see no slowdown in momentum for the brands and predict significant earnings upside for the year, maintaining a favorable risk/reward outlook ahead of the Q2 earnings release.