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Abercrombie and Fitch Rebrand Sends Earnings Skyrocketing
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Abercrombie and Fitch (ANF - Free Report) reported earnings Wednesday morning and absolutely crushed estimates. Analysts had projected earnings of -$0.02 per share for the quarter, but ANF reported $0.39 per share. The stock is up nearly 30% on the day.
Abercrombie brands grew 14% YoY and achieved its highest Q1 sales in more than a decade. Thanks to ANF’s successful rebranding efforts, the product offering is clearly resonating with customers, and back in line with the leading fashion trends.
Abercrombie & Fitch operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids through a network of approximately 850 stores across North America, Europe, Asia, and the Middle East.
Abercrombie's product portfolio includes knit and woven shirts, graphic T-shirts, fleeces, jeans and woven pants, shorts, sweaters, outerwear, personal care products and accessories for men, women, and kids, under the Abercrombie & Fitch, Abercrombie kids and Hollister brands.
ANF stock has struggled over the past five years, considerably underperforming the broad market. It is worth noting that the Retail-Apparel subindustry has really suffered over that time as well, and ANF has managed to outperform the struggling industry.
Image Source: Zacks Investment Research
Fashion Trends Come and Go
Starting in the late 90s and extending all the way to the early 2010s, ANF was on an unstoppable rise in popularity. From 1998 to 2013 annual sales grew from $500 million to $4.5 billion, and in malls across the country ANF stores were packed with kids buying its apparel.
However, like most fashion trends, Abercrombie and Fitch’s aesthetic would eventually go out of style. Dimly lit stores, bumping music, and blasting perfumes were no longer attracting customers, something that is obvious only now in hindsight.
Sales stagnated for a decade, but it seems the new designers at the company may be on to something. The company’s former product line, which focused on low-rise denim, and tight-fitting tops plastered with branding was ditched. Now ANF is selling elevated basics, with looks and sizes that appeal to a broader range of consumers.
Image Source: Zacks Investment Research
Industry Struggles
Abercrombie and Fitch weren’t alone in their struggles over the years. Many companies in the industry have been trending down for years. Once beloved brands like Gap (GPS - Free Report) , and Urban Outfitters (URBN - Free Report) have barely tread water over the last decade and a half.
Image Source: Zacks Investment Research
Gap has seen sales growth unchanged over the last fifteen years, posting the same revenue numbers today as in 2009. Urban Outfitters has managed to grow sales nicely over that period but have struggled with falling margins.
It is likely that URBN had a slight edge over GPS because they retail not only their own styles, but also sell other brands at the stores, allowing them to be a bit more flexible regarding trends.
Abercrombie and Fitch is showing Gap and Urban Outfitters exactly how to transition. With a tremendous bump in sales growth and hugely improving margins, ANF is laying out the path. Gross profit in Q1 was up 570 basis points for ANF.
Valuation
Abercrombie and Fitch is trading at a one-year forward earnings multiple of 16x, which is above the industry average of 14.2x. ANF is also trading at a premium competitor GPS, which is trading at 13x forward earnings. However, with the impressive turnaround ANF has managed, and potential for huge growth going forward, this valuation may be reasonable.
Image Source: Zacks Investment Research
Bottom Line
Abercrombie and Fitch currently has a Zacks Rank #3 (Hold), indicating mixed earnings revisions and making it hard to recommend as a buy. However, with these recent developments, analysts may soon be taking another look at their models.
ANF’s roller coaster ride, from popular, to struggling and now back on the rise is a common one in the fashion industry, although not many get a second chance. It looks like ANF may be ready to go on another ride, and investors should keep an eye on it.
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Abercrombie and Fitch Rebrand Sends Earnings Skyrocketing
Abercrombie and Fitch (ANF - Free Report) reported earnings Wednesday morning and absolutely crushed estimates. Analysts had projected earnings of -$0.02 per share for the quarter, but ANF reported $0.39 per share. The stock is up nearly 30% on the day.
Abercrombie brands grew 14% YoY and achieved its highest Q1 sales in more than a decade. Thanks to ANF’s successful rebranding efforts, the product offering is clearly resonating with customers, and back in line with the leading fashion trends.
Abercrombie & Fitch operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids through a network of approximately 850 stores across North America, Europe, Asia, and the Middle East.
Abercrombie's product portfolio includes knit and woven shirts, graphic T-shirts, fleeces, jeans and woven pants, shorts, sweaters, outerwear, personal care products and accessories for men, women, and kids, under the Abercrombie & Fitch, Abercrombie kids and Hollister brands.
ANF stock has struggled over the past five years, considerably underperforming the broad market. It is worth noting that the Retail-Apparel subindustry has really suffered over that time as well, and ANF has managed to outperform the struggling industry.
Image Source: Zacks Investment Research
Fashion Trends Come and Go
Starting in the late 90s and extending all the way to the early 2010s, ANF was on an unstoppable rise in popularity. From 1998 to 2013 annual sales grew from $500 million to $4.5 billion, and in malls across the country ANF stores were packed with kids buying its apparel.
However, like most fashion trends, Abercrombie and Fitch’s aesthetic would eventually go out of style. Dimly lit stores, bumping music, and blasting perfumes were no longer attracting customers, something that is obvious only now in hindsight.
Sales stagnated for a decade, but it seems the new designers at the company may be on to something. The company’s former product line, which focused on low-rise denim, and tight-fitting tops plastered with branding was ditched. Now ANF is selling elevated basics, with looks and sizes that appeal to a broader range of consumers.
Image Source: Zacks Investment Research
Industry Struggles
Abercrombie and Fitch weren’t alone in their struggles over the years. Many companies in the industry have been trending down for years. Once beloved brands like Gap (GPS - Free Report) , and Urban Outfitters (URBN - Free Report) have barely tread water over the last decade and a half.
Image Source: Zacks Investment Research
Gap has seen sales growth unchanged over the last fifteen years, posting the same revenue numbers today as in 2009. Urban Outfitters has managed to grow sales nicely over that period but have struggled with falling margins.
It is likely that URBN had a slight edge over GPS because they retail not only their own styles, but also sell other brands at the stores, allowing them to be a bit more flexible regarding trends.
Abercrombie and Fitch is showing Gap and Urban Outfitters exactly how to transition. With a tremendous bump in sales growth and hugely improving margins, ANF is laying out the path. Gross profit in Q1 was up 570 basis points for ANF.
Valuation
Abercrombie and Fitch is trading at a one-year forward earnings multiple of 16x, which is above the industry average of 14.2x. ANF is also trading at a premium competitor GPS, which is trading at 13x forward earnings. However, with the impressive turnaround ANF has managed, and potential for huge growth going forward, this valuation may be reasonable.
Image Source: Zacks Investment Research
Bottom Line
Abercrombie and Fitch currently has a Zacks Rank #3 (Hold), indicating mixed earnings revisions and making it hard to recommend as a buy. However, with these recent developments, analysts may soon be taking another look at their models.
ANF’s roller coaster ride, from popular, to struggling and now back on the rise is a common one in the fashion industry, although not many get a second chance. It looks like ANF may be ready to go on another ride, and investors should keep an eye on it.