Abercrombie & Fitch stock: the moment of clarity nears

Abercrombie & Fitch (ANF) stock price has bounced back after falling sharply earlier this month. It has risen by almost 40% and was trading at $170, its highest point since July 17th of this year. 

ANF has been a rockstar retailer in the past few years as the management has engineered a robust turnaround that has pushed its stock to the highest levels on record. It has soared by 90% this year, beating other retail-focused companies like American Eagle, The Gap, and Guess?.

The same performance has happened in the last five years as the stock jumped by over 1,000%, beating the S&P 500 index and even Bitcoin, which is up by 550% in this period. 

Revenue and profitability growth

Abercrombie & Fitch, the parent company of Hollister, Abercrombie Kids, Gilly Hicks, and its eponymous brand, has seen its stock surge as the management worked to re-engineer the firm.

With the fashion retail sector slowing, the management has worked to remodel its stores, iterate its styles, reduce its debt load, manage its inventory, and boost its e-commerce sales. It has also boosted its partnerships with influencers and expanded its geographical presence.

However, for a stock that has surged by 1,000% in the last five years, Abercrombie & Fitch’s financial performance shows nothing extraordinary. 

Its annual revenue jumped from over $3.623 billion in 2019 to over $4.2 billion last year. The management hopes that its revenue in 2025 will be between $4.1 billion and $4.3 billion while its longer-term ambition is to get sales to $5 billion. This is good growth, but not great, especially when compared to its stock performance. 

What is notable, however, as shown below, is that Abercrombie & Fitch has focused on profitable growth as its gross margin has risen from 57.75% in 2022 to 64% in the trailing twelve months. Its EBITDA margin has risen from 6.51% to 16.29% in this period. It hopes that its operating margin will grow from 8% to 10% in the long term.

Abercrombie & Fitch’s management has done a good job to manage its balance sheet. It has no short-term debt and has reduced its long-term borrowings from $343 million in 2020 to $213 million in the last report.

For a retailer, capital leases are an important part of liabilities. Even in this case, the company has done well as it has reduced its capital leases from over $1.2 billion in 2019 to $656 million. 

Earnings ahead

Therefore, for a stock that is firing on all cylinders, earnings play an important role since they let investors understand whether a company is doing well. In ANF’s case, the earnings report will come out on Thursday.

ANF’s stock tends to make some big moves after earnings. In May, it surged by almost 30% and reached its all-time high after releasing its financial results. Before that, it dropped by over 15% when it released the most recent financial results. 

Analysts expect the results to show that ANF’s revenue rose to $1.1 billion last quarter, an increase from the $935 million it made in the same period in 2023. Its earnings per share is seen coming in at $2.2, higher than the $1.1 it made in Q2’23. 

For the year, total sales are seen coming in at $4.79 billion, representing a 12% YoY growth rate. 

In addition to the headline figures, traders will be looking for its forward guidance and its margin guidance. 

Is ANF stock a good buy?

Analysts have a mixed opinion about Abercrombie & Fitch stock. In a note in July, JPMorgan analysts upgraded the company from neutral to overweight. However, in the same period, those at Argus Research downgraded it from buy to hold. 

Other analysts from the likes of Telsey Advisory Group, Citigroup, and UBS maintained their neutral view on the company. The average estimate is that the stock’s fair value is at $192, higher than the current $169. 

From a valuation standpoint, ANF is quite cheap since it trades at a forward P/E ratio of 16, lower than the S&P 500 index average of 21. Its industry median is 17.34.

Abercrombie & Fitch stock price analysis

The daily chart shows that the ANF share price bottomed at $121.2 in August as most stocks plunged. It has now bounced back by almost 20% and is nearing moving into a bull market. As it jumped, the stock crossed the crucial resistance point at $140, its highest point on March 5. 

The stock has also flipped the 50-day and 100-day moving averages into support levels. Also, it has formed what looks like a bullish flag pattern, pointing to more upside. If this happens, the stock will rise to the all-time high of $195, where it will form a double-top pattern. In this case, bulls will need to push it above that level and invalidate the bearish view of that pattern.