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Is Abercrombie's Post-Earnings Stock Dip a Green Light for Buyers?
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Abercrombie & Fitch Company (ANF - Free Report) saw its shares pullback since reporting second-quarter fiscal 2024 results on Aug. 28, 2024. Shares of this leading apparel retailer lost 3.1% since the last earnings release. This reflects an underperformance compared with the industry peers, Zacks Retail-Wholesale sector, and the broader S&P 500’s decline of 2%, 0.1%, and 1.3%, respectively.
Abercrombie Price Performance
Image Source: Zacks Investment Research
Abercrombie reported strong second-quarter fiscal 2024 results, with sales and earnings surpassing the Zacks Consensus Estimate and showing year-over-year improvement. This marks the sixth consecutive quarter where Abercrombie has outperformed top-and-bottom-line estimates.
Abercrombie’s earnings per share (EPS) of $2.50 improved 131.5% year over year, while sales increased 21% year over year to $1.13 billion and comparable sales (comps) rose 18%. The strong performance was fueled by substantial growth across regions and brands, especially in the Americas and the Abercrombie brand. The company’s earnings were supported by robust revenue growth and enhanced gross and operating margins.
Looking at fiscal 2024, the company expects net sales to increase 12-13% year over year compared with 10% growth expected earlier. ANF expects an operating margin of 14-15% for fiscal 2024 compared with the 14% mentioned earlier.
Abercrombie anticipates benefiting from the ongoing strength of its brands, fueled by a commitment to offering high-quality, trendy collections for new and loyal customers across various regions and brands. The company is also investing strategically in stores, digital platforms, and technology, aiming to bolster long-term growth. However, Abercrombie has cautioned of increased macroeconomic uncertainties, suggesting potential near-term challenges.
What Could Impact Investors’ Optimism for Abercrombie?
Although Abercrombie’s sales and operating margin outlook look good at first glance, at the mid-point of 12.5%, its sales growth projection suggests a slowdown in the rate of increase in the second half of fiscal 2024. Notably, the company has reported top-line growth of 22% and 21% for the first and second quarters of fiscal 2024, respectively. Additionally, the company’s sales expectation falls short of the 16% sales growth recorded in fiscal 2023.
On its earnings call, management noted that fiscal 2024 is one week shorter than fiscal 2023. Abercrombie anticipates this lost selling week to reduce fiscal fourth-quarter sales by $80 million or 5.5 percentage points. For the fiscal year, the retailer expects a sales impact of $50 million or 1.2 percentage points.
This was not enough, the company’s operating margin guidance, which is around 14.5% at the mid-point, also left investors concerned about the economic uncertainties and the sustainability of its profits earned in the past few quarters. The company’s recent operating margin expectation stands about 100 basis points below the 15.5% rate reported in second-quarter fiscal 2024.
Considering Abercrombie’s recent momentum, market bulls expected stronger growth for its fiscal 2024 top line and operating margin.
Given the facts, should we view Abercrombie’s recent stock dip as a sign of fading appeal and potential further decline, or simply a minor correction after a 152.4% rally in the past year?
Is ANF’s Overall Share Performance Just as Bad?
Abercrombie shares have experienced stability in the past year outperforming the industry in this period. Specifically, the ANF stock has rallied 152.4% in the past year compared with the industry’s growth of 21% and the S&P 500’s 23.6% increase.
Additionally, ANF has outpaced peers like Nordstrom (JWN - Free Report) , American Eagle (AEO - Free Report) and Urban Outfitters (URBN - Free Report) growth of 54.1%, 14.7% and 11.4%, respectively, in the past year.
Abercrombie Vs. Peers
Image Source: Zacks Investment Research
Currently, the Abercrombie stock is trading at a 30% discount from its 52-week high of $196.99, suggesting potential for an upside.
Furthermore, ANF trades above its 200-day moving average, indicating robust upward momentum and price stability. This technical strength reflects positive market perception and confidence in Abercrombie’s financial health and prospects.
Abercrombie’s Stock Trades Above 200-Day Moving Average
Image Source: Zacks Investment Research
Upward Estimate Trajectory
For fiscal 2024, the Zacks Consensus Estimate for ANF’s sales and EPS implies 12.6% and 61% year-over-year growth, respectively. The consensus mark for fiscal 2025 sales and earnings indicates 4.8% and 0.7% year-over-year growth, respectively.
The Zacks Consensus Estimate for ANF’s fiscal 2024 and 2025 earnings per share rose 1.4% and 2.2%, respectively, in the last seven days. The upward revision in earnings estimates indicates analysts’ increasing confidence in its earnings potential.
Image Source: Zacks Investment Research
Is Abercrombie’s Premium Valuation Justified?
Despite the downside, Abercrombie is currently trading at a significant premium to the industry peers on a forward 12-month price-to-sales (P/S), as evidenced by its forward 12-month P/S of 1.42X. The current valuation is above its five-year median of 1.34X and surpasses the broader industry’s multiple of 1.1X. After the recent decline in share price, we note that the company’s valuation P/S multiple has retracted slightly from 1.48X recorded a month ago.
Image Source: Zacks Investment Research
While the premium valuation suggests that shares are somewhat expensive on a relative basis, the premium is justified due to Abercrombie’s consistent financial performance and growth prospects driven by its successful rebranding efforts and strategic focus on key products.
Is the Post-Earnings Decline a Green Light for ANF?
Despite the expected slowdown in revenues and the ongoing macro environment, ANF shows resilience and growth potential in its earnings outlook and strong fundamentals. The company’s financial health and operational efficiency are evident in its underlying fundamentals. With robust transformation strategies, such as rebranding, digital expansion and store optimization, Abercrombie is well-positioned for sustained growth.
ANF’s recent stock decline may appear concerning at first glance, but it could also be seen as an opportunity for savvy investors. The company's current price presents a compelling entry point for investors eager to invest in this profitable apparel retailer. For those who already own the stock, stay invested for solid long-term prospects.
Image: Bigstock
Is Abercrombie's Post-Earnings Stock Dip a Green Light for Buyers?
Abercrombie & Fitch Company (ANF - Free Report) saw its shares pullback since reporting second-quarter fiscal 2024 results on Aug. 28, 2024. Shares of this leading apparel retailer lost 3.1% since the last earnings release. This reflects an underperformance compared with the industry peers, Zacks Retail-Wholesale sector, and the broader S&P 500’s decline of 2%, 0.1%, and 1.3%, respectively.
Abercrombie Price Performance
Image Source: Zacks Investment Research
Abercrombie reported strong second-quarter fiscal 2024 results, with sales and earnings surpassing the Zacks Consensus Estimate and showing year-over-year improvement. This marks the sixth consecutive quarter where Abercrombie has outperformed top-and-bottom-line estimates.
Abercrombie’s earnings per share (EPS) of $2.50 improved 131.5% year over year, while sales increased 21% year over year to $1.13 billion and comparable sales (comps) rose 18%. The strong performance was fueled by substantial growth across regions and brands, especially in the Americas and the Abercrombie brand. The company’s earnings were supported by robust revenue growth and enhanced gross and operating margins.
Looking at fiscal 2024, the company expects net sales to increase 12-13% year over year compared with 10% growth expected earlier. ANF expects an operating margin of 14-15% for fiscal 2024 compared with the 14% mentioned earlier.
Abercrombie anticipates benefiting from the ongoing strength of its brands, fueled by a commitment to offering high-quality, trendy collections for new and loyal customers across various regions and brands. The company is also investing strategically in stores, digital platforms, and technology, aiming to bolster long-term growth. However, Abercrombie has cautioned of increased macroeconomic uncertainties, suggesting potential near-term challenges.
What Could Impact Investors’ Optimism for Abercrombie?
Although Abercrombie’s sales and operating margin outlook look good at first glance, at the mid-point of 12.5%, its sales growth projection suggests a slowdown in the rate of increase in the second half of fiscal 2024. Notably, the company has reported top-line growth of 22% and 21% for the first and second quarters of fiscal 2024, respectively. Additionally, the company’s sales expectation falls short of the 16% sales growth recorded in fiscal 2023.
On its earnings call, management noted that fiscal 2024 is one week shorter than fiscal 2023. Abercrombie anticipates this lost selling week to reduce fiscal fourth-quarter sales by $80 million or 5.5 percentage points. For the fiscal year, the retailer expects a sales impact of $50 million or 1.2 percentage points.
This was not enough, the company’s operating margin guidance, which is around 14.5% at the mid-point, also left investors concerned about the economic uncertainties and the sustainability of its profits earned in the past few quarters. The company’s recent operating margin expectation stands about 100 basis points below the 15.5% rate reported in second-quarter fiscal 2024.
Considering Abercrombie’s recent momentum, market bulls expected stronger growth for its fiscal 2024 top line and operating margin.
Given the facts, should we view Abercrombie’s recent stock dip as a sign of fading appeal and potential further decline, or simply a minor correction after a 152.4% rally in the past year?
Is ANF’s Overall Share Performance Just as Bad?
Abercrombie shares have experienced stability in the past year outperforming the industry in this period. Specifically, the ANF stock has rallied 152.4% in the past year compared with the industry’s growth of 21% and the S&P 500’s 23.6% increase.
Additionally, ANF has outpaced peers like Nordstrom (JWN - Free Report) , American Eagle (AEO - Free Report) and Urban Outfitters (URBN - Free Report) growth of 54.1%, 14.7% and 11.4%, respectively, in the past year.
Abercrombie Vs. Peers
Image Source: Zacks Investment Research
Currently, the Abercrombie stock is trading at a 30% discount from its 52-week high of $196.99, suggesting potential for an upside.
Furthermore, ANF trades above its 200-day moving average, indicating robust upward momentum and price stability. This technical strength reflects positive market perception and confidence in Abercrombie’s financial health and prospects.
Abercrombie’s Stock Trades Above 200-Day Moving Average
Image Source: Zacks Investment Research
Upward Estimate Trajectory
For fiscal 2024, the Zacks Consensus Estimate for ANF’s sales and EPS implies 12.6% and 61% year-over-year growth, respectively. The consensus mark for fiscal 2025 sales and earnings indicates 4.8% and 0.7% year-over-year growth, respectively.
The Zacks Consensus Estimate for ANF’s fiscal 2024 and 2025 earnings per share rose 1.4% and 2.2%, respectively, in the last seven days. The upward revision in earnings estimates indicates analysts’ increasing confidence in its earnings potential.
Image Source: Zacks Investment Research
Is Abercrombie’s Premium Valuation Justified?
Despite the downside, Abercrombie is currently trading at a significant premium to the industry peers on a forward 12-month price-to-sales (P/S), as evidenced by its forward 12-month P/S of 1.42X. The current valuation is above its five-year median of 1.34X and surpasses the broader industry’s multiple of 1.1X. After the recent decline in share price, we note that the company’s valuation P/S multiple has retracted slightly from 1.48X recorded a month ago.
Image Source: Zacks Investment Research
While the premium valuation suggests that shares are somewhat expensive on a relative basis, the premium is justified due to Abercrombie’s consistent financial performance and growth prospects driven by its successful rebranding efforts and strategic focus on key products.
Is the Post-Earnings Decline a Green Light for ANF?
Despite the expected slowdown in revenues and the ongoing macro environment, ANF shows resilience and growth potential in its earnings outlook and strong fundamentals. The company’s financial health and operational efficiency are evident in its underlying fundamentals. With robust transformation strategies, such as rebranding, digital expansion and store optimization, Abercrombie is well-positioned for sustained growth.
ANF’s recent stock decline may appear concerning at first glance, but it could also be seen as an opportunity for savvy investors. The company's current price presents a compelling entry point for investors eager to invest in this profitable apparel retailer. For those who already own the stock, stay invested for solid long-term prospects.
Abercrombie currently sports a Zacks Rank #1 (Strong Buy) and boasts a Value Score of A, making it an attractive investment option, according to Zacks' proprietary methodology. You can see the complete list of today's Zacks #1 Rank stocks here.