Abercrombie & Fitch Co. (ANF Quick QuoteANF - Free Report) continues its unstoppable rally on the bourses, driven by its awe-inspiring assortments and rising popularity. The company has been witnessing a surge in demand on the back of its effective rebranding efforts, which have brought it back in line with the leading fashion trends. Also, strategic investments across stores, digital and technology via its Always Forward Plan bode well.

The company’s results in first-quarter fiscal 2023 particularly gained from the continued momentum in the Abercrombie brand and a sequential improvement in the Hollister brand. The apparel retailer undertook efforts to improve its inventory across all labels, thereby attracting customers to shop for a diverse range of products like dresses and cargo.

Reflecting the strength in its brands, the ANF stock has rallied significantly over the past year, considerably outperforming the broader market. It is worth noting that the Retail-Apparel industry has indeed suffered over the same time frame. Nonetheless, ANF has managed to outperform the struggling industry.

Shares of the Zacks Rank #1 (Strong Buy) company surged 120.6% in the past year compared with the industry’s growth of 6.2% and the sector’s rise of 8.9%. The company also surpassed the market at large, with the S&P 500 gaining 15.7% in the same time frame.

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Silver-Lining

Abercrombie remains on track with its 2025 Always Forward plan that focuses on brand growth, leveraging its omnichannel capabilities, and expanding digital penetration and financial discipline. As part of this plan, the company earlier provided a financial outlook for fiscal 2025 and a long-term view. It anticipates annual revenues of $4.1-$4.3 billion and an annual operating margin rate of 8% or more by the end of fiscal 2025. For the long term, management expects annual revenues of $5 billion and an annual operating margin rate of 10% or more.

The company predicts the Abercrombie & Fitch, and abercrombie kids brands to see a 6-8% sales CAGR over the next three years, with Hollister and Gilly Hicks brands likely to witness a flat to 2% and 15% sales CAGR. Notably, Abercrombie & Fitch adults are likely to be the major drivers in the long run.

Abercrombie intends to accelerate its digital revolution via the Knowing Their Customer Better and Wowing Them Everywhere initiatives. Increased investment in customer analytics to meet and outpace customer demand bodes well. Lastly, it plans to generate at least $600 million of free cash flow in the next three years to deliver healthy shareholder returns, and drive omnichannel growth across digital and physical stores.

Abercrombie is working toward rationalizing its store base by reducing its dependence on underperforming tourist-driven locations. As part of its store-optimization plans, Abercrombie intends to reposition larger-format flagship locations to smaller omni-channel-enabled stores. Progressing on these efforts, the company opened six stores, including three Hollister and three Abercrombie stores, in the fiscal first quarter. It closed seven Hollister and three Abercrombie stores.

Driven by these factors, management envisions fiscal 2023 net sales to grow 2-4% year over year, up from the prior guidance of a 1-3% rise. The company expects the Abercrombie brand to outperform Hollister. Region-wise, the United States is likely to outperform International.

Also, fiscal 2023 includes a 53rd week, which is estimated to benefit sales by $45 million. Abercrombie expects an operating margin of 5-6%, up from the earlier stated 4-5%. This includes gains of 250 bps from reduced freight and raw material costs, somewhat offset by inflation and increased operating expense investment for the 2025 Always Forward Plan initiatives.

For second-quarter fiscal 2023, the company expects sales growth of 4-6%. The operating margin is envisioned to be 2-3%, whereas it reported breakeven results in the prior-year quarter. This is likely due to lower freight and raw material costs, partly offset by a slight decline in the operating margin from inflation and increased operating expense investment for the 2025 Always Forward Plan initiatives.

The Zacks Consensus Estimate for sales and earnings for the current financial year suggests growth of 3.4% and 732%, respectively, from the year-ago quarter’s reported figures. A VGM Score of B also echoes investors’ optimism about the stock.

Other Stocks to Consider

Some other top-ranked stocks that investors may consider are Urban Outfitters (URBN Quick QuoteURBN - Free Report) , Builders FirstSource (BLDR Quick QuoteBLDR - Free Report) and Stitch Fix (SFIX Quick QuoteSFIX - Free Report) .

Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products. URBN currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales and earnings per share suggests growth of 5.1% and 57.1%, respectively, from the year-ago reported figures. URBN has a trailing four-quarter earnings surprise of 12.2%, on average. The expected EPS growth rate for three to five years is 18%.

Builders FirstSource is the largest supplier of building materials, manufactured components and construction services to professional homebuilders, sub-contractors, remodelers and consumers. BLDR currently flaunts a Zacks Rank #1.

The Zacks Consensus Estimate for Builders FirstSource’s current financial-year sales and earnings suggests declines of 28.5% and 45.1%, respectively, from the year-ago period. BLDR has a trailing four-quarter earnings surprise of 68.3%, on average.

Stitch Fix, one of the leading online personal styling retailers, currently carries a Zacks Rank of 2 (Buy). SFIX has a trailing four-quarter earnings surprise of 7.7%, on average.

The Zacks Consensus Estimate for Stitch Fix’s current financial year’s loss per share suggests growth of 9.6% from the year-ago reported figure.