Abercrombie & Fitch Co. (ANF Quick QuoteANF - Free Report) is well-poised to tap the positive trends in the fashion world, thanks to its digital endeavors and other robust strategies. The company has been gaining from brand strength and solid demand for its products that resonate well with customers. Undoubtedly, management is focused on creating a trend-right merchandise assortment, deepening relations with customers via marketing, enhancing the digital commerce agenda and efficiently controlling expenses.

Buoyed by such strengths, shares of this apparel and accessories dealer have soared 59.9% compared with the industry’s 35.2% growth in the three-month time frame.

What’s More to Know?

Strategic investments across stores, digital and technology via the Always Forward Plan bode well. The company has been working toward rationalizing the store base by reducing its dependence on underperforming tourist-driven locations. As part of its store optimization plans, Abercrombie plans to reposition larger format flagship locations to smaller omnichannel-enabled stores.

We note that Abercrombie has been witnessing favorable margin trends, mainly driven by lower freight costs and improved average unit retail (AUR). Abercrombie’s gross margin expanded 570 basis points (bps) to 64.9% in third-quarter fiscal 2023. The increase can be attributed to a 200-bps gain from reduced freight costs, a 250-bps impact of AUR growth and a 200-bps gain from lower inventory write-downs, partly offset by an 80-bps impact from increased raw material costs. The company reported an operating income of $138 million, up from an adjusted operating income of $21 million in the year-ago period.

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The company has been witnessing momentum in its Hollister label. Brand-wise, net sales improved 11% year over year at Hollister and advanced 30% at Abercrombie in the third quarter of fiscal 2023. The Abercrombie brand contributed 52% to the total company sales while Hollister represented 48% of sales.

Abercrombie is on track with its 2025 Always Forward plan, which focuses on brand growth, leveraging its omnichannel capabilities, and expanding digital penetration and financial discipline. As part of this plan, the company had earlier provided a financial outlook for fiscal 2025 and a long-term view. For the long term, management expects annual revenues to be $5 billion and an annual operating margin rate of 10% or more.

Given all the positives, Abercrombie stock seems to deserve a place in your investment portfolio. Analysts also seem quite optimistic about the company. The Zacks Consensus Estimate for fiscal 2024 sales and earnings per share (EPS) is currently pegged at $4.4 billion and $6.51, respectively. These estimates show corresponding growth of 3.8% and 6.3% year over year. A VGM Score of B further adds strength to this current Zacks Rank #1 (Strong Buy) company.

Eye These Solid Picks Too

We have highlighted three other top-ranked stocks, namely Gap , American Eagle (AEO Quick QuoteAEO - Free Report) and Hibbett .

Gap, a fashion retailer of apparel and accessories, currently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 137.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Gap’s current financial-year EPS indicates growth of 387.5% from the year-ago reported figure.

American Eagle, a leading apparel retailer, currently sports a Zacks Rank of 1. AEO delivered an average earnings surprise of 23% in the trailing four quarters.

The Zacks Consensus Estimate for American Eagle’s current financial-year sales implies growth of 5% from the year-ago reported figure.

Hibbett, a key sporting goods retailer, currently carries a Zacks Rank #2 (Buy). HIBB delivered an average earnings surprise of 24.2% in the trailing four quarters.

The Zacks Consensus Estimate for Hibbett’s current financial-year sales indicates growth of 1.8% from the year-ago reported figure.