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Here's Why Abercrombie (ANF) Stock Seems a Promising Bet
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Abercrombie & Fitch Co. (ANF - Free Report) seems well-poised for growth, 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. Strategic investments across stores, digital and technology via its Always Forward Plan also bode well. Buoyed by such strengths, shares of this apparel and accessories dealer have soared 36.9% compared with the industry’s 12.7% growth in the past six months.
What’s More to Know?
Abercrombie has been working toward rationalizing its store base. As part of its store-optimization plans, Abercrombie intends to reposition larger format flagship locations to smaller omnichannel-enabled stores. The company ended the fiscal fourth quarter with 765 stores across 5 million gross square feet. It delivered 57 new store experiences, comprising 35 new stores, nine right sizes and 13 remodels, while closing 32 stores in fiscal 2023. In fiscal 2024, it expects to deliver around 75 new experiences with 45 new stores and 30 right sizes or remodels.
We note that the company has been witnessing favorable margin trends, mainly driven by lower freight and raw material costs, and improved average unit retail (AUR). Abercrombie’s gross margin expanded 720 basis points (bps) to 62.9% in fourth-quarter fiscal 2023. The gross margin expansion included a 290-bps gain from reduced freight costs and a 430-bps benefit from AUR growth. For the first quarter of fiscal 2024, operating margin is expected in the band of 8-10%, higher than adjusted operating margin of 4.6% delivered in first-quarter fiscal 2023. This will be backed by higher gross margin.
Image Source: Zacks Investment Research
The company has been experiencing strong sales for each of its brands for a while. In fourth-quarter fiscal 2023, brand-wise, net sales improved 9% year over year at Hollister and advanced 35% at Abercrombie. The Abercrombie brand contributed 52% to the total company sales while Hollister represented 48% of sales. Comparable sales grew 6% and 28%, respectively.
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 seem quite optimistic about the company. The Zacks Consensus Estimate for fiscal 2024 sales and earnings per share (EPS) is currently pegged at $4.5 billion and $7.48, respectively. These estimates show corresponding growth of 5.6% and 19.1% year over year. A VGM Score of A further adds strength to this current Zacks Rank #1 (Strong Buy) company.
The Zacks Consensus Estimate for American Eagle’s current financial-year sales suggests growth of 3.3% from the year-ago reported figure. AEO delivered an earnings surprise of 22% in the last reported quarter.
Gap, a leading apparel retailer, currently sports a Zacks Rank of 1. GPS delivered an earnings surprise of 180.9% in the trailing four quarters.
The Zacks Consensus Estimate for Gap’s financial-year sales suggests growth of 1.7% from the year-ago reported figure.
Deckers, a footwear and accessories dealer, currently sports a Zacks Rank of 1. DECK delivered an earnings surprise of 32.1% in the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales suggests growth of 15.8% from the year-ago reported figure.
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Here's Why Abercrombie (ANF) Stock Seems a Promising Bet
Abercrombie & Fitch Co. (ANF - Free Report) seems well-poised for growth, 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. Strategic investments across stores, digital and technology via its Always Forward Plan also bode well. Buoyed by such strengths, shares of this apparel and accessories dealer have soared 36.9% compared with the industry’s 12.7% growth in the past six months.
What’s More to Know?
Abercrombie has been working toward rationalizing its store base. As part of its store-optimization plans, Abercrombie intends to reposition larger format flagship locations to smaller omnichannel-enabled stores. The company ended the fiscal fourth quarter with 765 stores across 5 million gross square feet. It delivered 57 new store experiences, comprising 35 new stores, nine right sizes and 13 remodels, while closing 32 stores in fiscal 2023. In fiscal 2024, it expects to deliver around 75 new experiences with 45 new stores and 30 right sizes or remodels.
We note that the company has been witnessing favorable margin trends, mainly driven by lower freight and raw material costs, and improved average unit retail (AUR). Abercrombie’s gross margin expanded 720 basis points (bps) to 62.9% in fourth-quarter fiscal 2023. The gross margin expansion included a 290-bps gain from reduced freight costs and a 430-bps benefit from AUR growth. For the first quarter of fiscal 2024, operating margin is expected in the band of 8-10%, higher than adjusted operating margin of 4.6% delivered in first-quarter fiscal 2023. This will be backed by higher gross margin.
Image Source: Zacks Investment Research
The company has been experiencing strong sales for each of its brands for a while. In fourth-quarter fiscal 2023, brand-wise, net sales improved 9% year over year at Hollister and advanced 35% at Abercrombie. The Abercrombie brand contributed 52% to the total company sales while Hollister represented 48% of sales. Comparable sales grew 6% and 28%, respectively.
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 seem quite optimistic about the company. The Zacks Consensus Estimate for fiscal 2024 sales and earnings per share (EPS) is currently pegged at $4.5 billion and $7.48, respectively. These estimates show corresponding growth of 5.6% and 19.1% year over year. A VGM Score of A further adds strength to this current Zacks Rank #1 (Strong Buy) company.
Other Solid Picks
We have highlighted three other top-ranked stocks, namely American Eagle (AEO - Free Report) , Gap (GPS - Free Report) and Deckers (DECK - Free Report) .
American Eagle, a leading apparel retailer, currently sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for American Eagle’s current financial-year sales suggests growth of 3.3% from the year-ago reported figure. AEO delivered an earnings surprise of 22% in the last reported quarter.
Gap, a leading apparel retailer, currently sports a Zacks Rank of 1. GPS delivered an earnings surprise of 180.9% in the trailing four quarters.
The Zacks Consensus Estimate for Gap’s financial-year sales suggests growth of 1.7% from the year-ago reported figure.
Deckers, a footwear and accessories dealer, currently sports a Zacks Rank of 1. DECK delivered an earnings surprise of 32.1% in the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales suggests growth of 15.8% from the year-ago reported figure.