Should You Add Abercrombie & Fitch (ANF) to Your Portfolio?

Abercrombie & Fitch Co. (ANF) is a leading global specialty retailer specializing in apparel and accessories for kids through millennials. The company operates under the Abercrombie & Fitch and Hollister brands, delivering high-quality, comfortable products catering to diverse lifestyle needs.

ANF operates more than 750 stores across North America, Europe, Asia, and the Middle East, as well as the e-commerce sites abercrombie.com and HollisterCo.com. The retailer’s outstanding first-quarter 2024 results reflect the power of its brands and the solid execution of its global playbook.

The company reported first-quarter net sales of $1.02 billion, surpassing analysts’ estimate of $964.99 million. ANF successfully managed seasonal transitions with relevant assortments and engaging marketing, leveraging agile chase capabilities and inventory discipline, which led to sales exceeding its expectations.

Sales growth was broad-based across regions and brands, with Abercrombie brands achieving a 31% increase and Hollister brands seeing a 12% rise. The robust top-line performance and gross profit expansion resulted in record first-quarter operating income and an operating margin of 12.7%. Its EPS came in at $2.14, compared to the consensus estimate of $1.72.

After a solid first-quarter performance, ANF raised its full-year sales and operating margin outlook. For fiscal 2024, the company expects net sales to be up nearly 10% from $4.3 billion in 2023. That is compared to the prior outlook of growth in the range of 4% to 6%. Its operating margin is expected to be around 14%, up from the previous outlook of nearly 12%.

For the second quarter of 2024, the omnichannel specialty retailer expects net sales growth to be up mid-teens compared to the second-quarter 2023 level of $935 million. ANF’s operating margin is expected to be in the range of 13% to 14%, compared to 9.6% in the second quarter of 2023.

“We remain on track to achieve our 2024 goal of demonstrating sustainable, profitable growth after a defining year for the company in fiscal 2023. Our brands are delivering high-quality, on-trend assortments for new and retained customers across regions and brands. Importantly, we continue to make strategic investments across stores, digital and technology to further strengthen the company in pursuit of our long-term ambition,” said CEO Fran Horowitz.

Shares of ALLE have gained 11.7% over the past month and 12.8% over the past year to close the last trading session at $127.75.

Let's look at factors that could influence ANF’s performance in the upcoming months.

Solid Financial Performance

For the first quarter that ended May 4, 2024, ANF’s net sales increased 22.1% year-over-year to $1.02 billion. Its gross profit rose 32.9% from the year-ago value to $677.46 million. Its operating income came in at $129.85 million, up 281.8% year-over-year. Its adjusted EBITDA grew 125% from the prior year’s quarter to $167.54 million.

Additionally, net income attributable to A&F was $113.85 million, or $2.14 per share, increases of 587% and 192.1% from the prior year’s period, respectively. The specialty retailer ended the first quarter with cash and cash equivalents of $864.20 million.

Favorable Analyst Estimates

Analysts expect ANF’s revenue for the second quarter (ending July 2024) to grow 15.9% year-over-year to $1.08 billion. The consensus EPS estimate of $2.23 for the ongoing quarter indicates an improvement of 102.5% year-over-year. Further, the company has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

For the fiscal year ending January 2025, Street expects ANF’s revenue and EPS to increase 11.2% and 55.3% from the previous year to $4.76 billion and $9.75, respectively. The company’s revenue and EPS for the fiscal year 2026 are expected to grow 4.8% and 1.4% year-over-year to $4.99 billion and $9.89, respectively.

Remarkable Historical Growth

Over the past three years, ANF’s revenue has grown at a CAGR of 9.3%, and its EBITDA has increased at a CAGR of 22.9%. Its net income and EPS have improved at impressive CAGRs of 35.3% and 43.3% over the same period, respectively. In addition, the company’s levered free cash flow has grown at a CAGR of 14% over the same timeframe.

Accelerating Profitability

ANF’s trailing-12-month gross profit margin of 64.07% is 73.8% higher than the 36.87% industry average. Likewise, the stock’s trailing-12-month EBITDA margin of 16.29% is 42.6% higher than the industry average of 11.42%. Moreover, its trailing-12-month net income margin of 9.53% is 103.7% higher than the industry average of 4.68%.

Also, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 47.78%, 18.13%, and 14.32% are favorably compared to the industry averages of 11.68%, 6.22%, and 4.26%, respectively. Its trailing-12-month levered FCF margin of 12.30% is 129.6% higher than the industry average of 5.36%.

POWR Ratings Reflect Promise

ANF’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ANF has an A grade for Quality, consistent with higher-than-industry profitability. It also has a B grade for Growth, in sync with outstanding financial performance in the last reported quarter and optimistic analyst estimates.

Within the B-rated Fashion & Luxury industry, ANF is ranked #8 out of 59 stocks.

Beyond what I have stated above, we have also given ANF grades for Momentum, Value, Sentiment, and Stability. Get all ANF ratings here.

Bottom Line

ANF demonstrates robust financial health and significant growth potential, as evidenced by its outstanding first-quarter results and upward revisions to its full-year sales and operating margin outlook. The specialty retailer is well-positioned for continued success with its strategic investments in stores, digital platforms, and technology.

Given its robust financials, high profitability, and bright growth outlook, ANF presents a compelling investment opportunity with substantial upside potential.

How Does Abercrombie & Fitch Co. (ANF) Stack Up Against Its Peers?

While ALLE has an overall POWR Rating of B, investors could also check out these other stocks within the Fashion & Luxury industry with an A (Strong Buy) rating: H&M Hennes & Mauritz AB ADR (HNNMY), J. Jill, Inc. (JILL), and Hugo Boss AG (BOSSY).

To explore more A or B-rated fashion stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

ANF shares rose $0.44 (+0.33%) in premarket trading Thursday. Year-to-date, ANF has gained 49.13%, versus a 9.81% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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