Abercrombie & Fitch (ANF) took a significant hit on Jan. 13, plunging over 15.7% despite the apparel and accessories retailer boosting its guidance for the holiday quarter and full year.
Abercrombie’s management revealed that the company achieved record-breaking third-quarter sales, surpassing the expectations set in November. This performance reflects strong comparable sales across its brands and regions.
Solid holiday sales prompted the retailer to upwardly revise its Q4 and 2024 sales growth forecast. It now anticipates its top line to grow 7%-8% in Q4, compared to its previous estimate of 5%-7%.
The company once again raised its expectations for the full year, reflecting that the demand for its products remains high. It expects to deliver net sales growth of around 15% for 2024 and an operating margin of around 15%.
While this revised outlook reflects momentum, it compared unfavorably with the results it achieved during the same period last year. ANF recorded net sales growth of 21% in Q4 2023, led by 35% growth in Abercrombie brands. Additionally, the updated guidance missed the market’s expectations, leading to a decline in ANF stock.
However, is the recent drop in Abercrombie & Fitch stock unwarranted? If so, it could present a serious buying opportunity. Let’s take a closer look.
Momentum to Sustain in ANF’s Business
Abercrombie & Fitch has taken measures to transform its business in recent years. The company’s strategic initiatives, such as enhancing product quality, expanding its customer base, closing underperforming stores, and refining both digital and in-store experiences, have enabled it to generate solid sales growth.
The global net sales of Abercrombie brands have grown at a CAGR of 10% since 2019. Further, the company has increased its top and bottom lines at a solid pace over the past two years, leading to a significant rise in its share price. For instance, Abercrombie’s stock price has appreciated more than 370% in the last two years.
Abercrombie & Fitch’s emphasis on leveraging its omnichannel capabilities and digital penetration has driven global brand expansion. These efforts are expected to continue delivering robust shareholder value. With strong customer-driven brands catering to distinct and large markets, Abercrombie & Fitch is well-positioned to maintain its momentum into 2025 and beyond.
ANF’s sales growth remains broad-based across regions, genders, and product categories, reflecting strong customer demand. The company will likely sustain high unit selling prices and average unit retail (AUR), supported by reduced promotional activity and a focus on full-price sales. The resonance of its brands with consumers has been pivotal, enabling the company to deliver fresh product offerings and maintain balanced growth across its portfolio.
Digital initiatives are key to the company’s growth strategy. Investments in e-commerce infrastructure are expected to drive a significant share of revenue, while brick-and-mortar stores continue to play a critical role in the omnichannel experience. New and existing store investments support traffic and productivity, with physical locations acting as key touchpoints for customer engagement.
Abercrombie & Fitch is integrating technology with customer convenience. Services like purchase-online-pickup-in-store, curbside pickup, same-day delivery, and ship-from-store operations contribute significantly to sales growth and inventory productivity. These features streamline the shopping experience, drive incremental in-store sales, and bolster customer loyalty.
The company’s robust margin structure and strong balance sheet provide a solid base for future growth. At the end of the third quarter, Abercrombie had $683 million in cash and equivalents, up from $649 million in the year-ago period. It also has $450 million of borrowing available through a revolving credit facility. By focusing on operational efficiency, ANF will likely grow its operating income and earnings per share (EPS) faster than sales, enhancing long-term shareholder returns.
The Bottom Line
Abercrombie & Fitch’s strategic initiatives to accelerate sales growth, solid customer demand, and financial discipline position it for sustained growth. Its ability to capitalize on digital and omnichannel trends, coupled with a strong brand presence and operational efficiency, makes ANF a solid long-term bet.
While Wall Street analysts have a “Moderate Buy” consensus rating on ANF stock, the dip in its price presents a buying opportunity for long-term investors.
