Happy Sunday to everyone on The Street.
You asked, we answered.
We ran a special “Equity Research” edition of our newsletter ahead of the election, and asked you, our readers, whether you’d like more in the future. The response was a resounding, “Yes.”
So, as promised, we’re interrupting your usual Sunday programming once again with a deep dive into a stock that may be impacted by the upcoming holidays.
If you missed last week’s report, check it out here.
And before we dive into today’s, here’s a quick word from our sponsor:
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Party Like It's 2009
Has a single stock seen a wilder Cinderella Story in recent years than Abercrombie & Fitch (ANF)?
(And, no, not just because its infamous ads scream “NSFW Prince Charming”.)
Abercrombie — and its unmistakably pungent cologne — was a dominant mall brand back in the aughts. Then, in the early 2010s, mismanagement and controversial comments by then-CEO Mike Jefferies sent the brand into a downward spiral.
The story didn’t end well for Jefferies, who was indicted on federal sex trafficking charges back in October. But it’s practically a fairy tale for the once-maligned brand.
Since 2023, ANF’s stock is up more than 600%, thanks largely to extensive restructuring and rebranding efforts. Gone are the short-shorts and muscle tees, replaced by trendier knit polos and high-rise jeans. But in terms of relevance and performance, ANF has been partying like it’s 2009.
Can that momentum last through this holiday season?
Let’s dive in.
Executive Summary
Analysts widely acknowledge Abercrombie & Fitch’s improved inventory management, rising profit margins, and strong brand appeal as critical drivers. Of 9 analysts covering the stock, 5 rate it a Hold, 3 a Buy, and 1 a Strong Buy. Its average 12-month price target is $185, indicating an upside potential of 22.5% from its current price of $151. ANF has also delivered a more than 100% trailing 1-year price return.
These metrics highlight confidence in the company’s ability to execute its “2025 Always Forward Plan,” which emphasizes store optimization, geographic expansion, and digital growth. The company’s robust cash position and underpenetrated international markets suggest some long-term potential too.
However, some market observers lean cautious on the stock, due to macroeconomic risks and decelerating H2 FY2024 growth. Valuation concerns also persist, as ANF trades at a slight premium to peers.
Company & Industry Overview
Founded in 1892 and headquartered in New Albany, Ohio, Abercrombie & Fitch is a specialty retailer offering casual apparel, accessories, and personal care products.
Operating under two main segments — Hollister and Abercrombie — the company boasts approximately 729 retail stores across Europe, Asia, Canada, the Middle East, and the US, complemented by robust e-commerce and third-party licensing channels.
Abercrombie & Fitch holds a competitive 7.7% share of the US apparel market, positioning it alongside key rivals like Gap Inc. (8.5%) and American Eagle Outfitters (6.2%).
The global apparel industry is forecasted to grow at around 4% CAGR through 2028.
Abercrombie Brands
Source: Company Presentation
Hollister Brands
Source: Company Presentation
The Bull Case
It’s hard not to be impressed by the run Abercrombie & Fitch has had in recent years. The question for investors is how long it can continue.
For the bulls, confidence stems from the company’s robust cash position ($738 million) and lack of long-term debt. Furthermore, despite the broader retail market’s volatility, comparable store sales at Abercrombie and Hollister brands have grown 26% and 17% year-over-year, respectively. This signals ANF’s impressive ability to navigate shifting consumer preferences, fueled by targeted digital and social marketing.
Bullish analysts also commonly highlight ANF’s efficient inventory management, a critical factor in retail, supporting higher margins and improved cash flow.
Abercrombie’s Improving Inventory Management
Source: Seeking Alpha, Koyfin
Potential long-term growth catalysts include ANF’s targeted geographic expansion, particularly in Europe and APAC, where a roughly $400 million revenue opportunity remains underpenetrated.
Additionally, bulls view ANF’s margin improvement efforts as promising. The company’s gross margin reached 63.6% in H1 2024. Continued execution of strategic initiatives, alongside market-leading profitability improvements, may position ANF favorably for sustained earnings growth and positive investor sentiment.
Uprising Consensus On EPS
Source: Koyfin
The Bear Case
Bears have several reasons for a more cautious approach to Abercrombie & Fitch, particularly its exposure to cyclical and unpredictable retail dynamics. ANF operates in a highly competitive and trend-driven industry. Bears argue that the company’s rapid resurgence could just as easily turn into a speedy descent.
Macroeconomic headwinds further compound these risks. As a retailer of discretionary goods, ANF is highly vulnerable to a potential downturn in consumer spending.
Valuation concerns also weigh on the bearish outlook. ANF's share price saw a more than 70% total return YTD, and it currently trades at a forward price-to-earnings (P/E) ratio of 13.7x, a premium to competitors like Gap (11.6x) and American Eagle Outfitters (10.2x).
Furthermore, the company’s high operating margins could face pressure if input costs (like cotton) rise or freight costs remain elevated, underscoring the risks of relying on cost efficiencies to sustain profitability in a volatile retail environment.
Financial Analysis & Valuation
Abercrombie & Fitch has demonstrated strong financial performance in FY2024, delivering record results in the third quarter, with adjusted earnings per share (EPS) surging 36.6% annually. Net sales also rose 14%, marking the sixth consecutive quarter of double-digit growth. Both readings beat consensus expectations on the Street.
Consensus Estimates
Source: TIKR, Seeking Alpha
Despite ANF’s high P/E relative to its peers, its EV/EBITDA multiple stands at 6.3x (based on FY2024 estimates), aligning more closely with industry norms and suggesting that the stock may be fairly priced after all.
Last Year P/E Multiple (Forward Year): ANF vs Competitors
Source: Koyfin
ANF’s valuation appears justified by robust growth metrics, operational efficiency improvements, and rising revenue estimates, which analysts have revised upward to $4.82 billion for FY2026.
Meanwhile, forecasts of decelerating growth in H2 FY2024 did not materialize in Q3, suggesting the company could indeed continue its record run into the ever-important holiday season.
While the stock is far from undervalued, and high investor expectations may warrant caution, Abercrombie & Fitch still appears attractively priced for its growth trajectory and operational discipline, and merits a close look from prospective investors.
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