Abercrombie & Fitch (NYSE:ANF) inventory has fallen since I last covered the clothing retailer in March and is down 17% from its peak. Recognizing a extra important margin of security now that the inventory worth is decrease, I’m comparatively bullish on the clothes and niknaks model that has completely reimagined its providing lately.
The corporate stays a major winner from the previous 12 months — the stock has gained 365.6%, as you may see beneath — and at 14.6x ahead earnings, I don’t assume it’s significantly costly.
ANF’s Turnaround Story
Abercrombie & Fitch has carried out probably the most profitable turnaround tales in current occasions. It could shock some folks to listen to that Abercrombie was truly voted the most-hated retail model as lately as 2016. The corporate’s earlier focus was on aspirations and trying to painting an aura of exclusivity. Fashions had been typically scantily clad or posed in suggestive methods.
This technique was meant to enchantment to a younger viewers and generate a way of want. However occasions modified and Abercrombie didn’t — till lately. And it was solely two years in the past that Netflix (NASDAQ:NFLX) launched White Sizzling, a documentary revealing the tradition of discrimination that underpinned the corporate’s earlier success.
So, what’s occurred? Predictably, Era Z has confirmed much less tolerant of Abercrombie’s exclusivity-focused branding and discriminatory tradition than Millennials and older generations. Consequently, Abercrombie has shifted to a extra inclusive method, with its advertising and marketing now that includes fashions from numerous ethnicities, physique varieties, and genders. However there’s been extra of a strategic shift, with the corporate now extra of an all-American model that focuses on offering high-quality, typically unbadged items.
Apparently, administration didn’t begin trying to reinvent the corporate till 2019. Nevertheless, no matter whether or not this rebrand may need been a bit late, it actually seems to be working.
Right here’s what CEO Fran Horowitz mentioned within the This autumn earnings name: “From begin to end, 2023 was a defining 12 months for our firm. We noticed top-line development throughout areas and types leading to gross sales of $4.28 billion, up 15.8% to 2022 and our second-highest annual gross sales stage in our historical past. On profitability, we achieved an working margin of 11.3%, our greatest in 15 years.”
ANF Has Sturdy Financials and Stable Metrics
In This autumn, the corporate registered its smallest earnings beat in six quarters, and to some extent, I imagine the corporate’s momentum is operating low. Nevertheless it’s nonetheless in a terrific place, as fourth-quarter internet gross sales had been up 21%, and full-year internet gross sales had been up 16%.
Apparently, it’s Abercrombie — the as soon as exclusivity-focused a part of the enterprise — that’s outperforming. Abercrombie led the way in which with 27% development on a reported foundation and 23% development on a comparable gross sales foundation. In the meantime, Hollister delivered whole gross sales development of 6% on a reported foundation and 4% on a comparable gross sales foundation.
Furthermore, the success of Abercrombie’s turnaround is mirrored in a powerful money place on the finish of 2023. Cash and cash equivalents reached $901 million, with whole liquidity sitting at roughly $1.2 billion. Operating cash flow for the year was $653 million, considerably contributing to the corporate’s money place. Abercrombie has whole debt of $1.05 billion, with administration considerably lowering the corporate’s debt burden since 2020.
From a valuation perspective, Abercrombie trades at 14.6x ahead earnings. This determine drops to 14x based mostly on projections for 2025 and 13.45x based mostly on the earnings forecast for 2026. Whereas this may increasingly make it a bit costly on a price-to-earnings-to-growth ratio, it’s buying and selling broadly according to its friends. Nevertheless, momentum is a vital factor, and whereas it’s operating a bit low in comparison with six months in the past, I’m nonetheless hoping to see Abercrombie proceed to beat estimates, going ahead.
Abercrombie isn’t because of report its Q1 outcomes till Could 21, so I worry the inventory might stay a bit directionless till then. However there are some constructive indicators. U.S. retail gross sales surged 0.7% in March after rising 0.9% in February, with buyers seeming unfazed by persistent inflation. This can be positively mirrored in earnings.
Is ANF Inventory a Purchase, Based on Analysts?
Abercrombie & Fitch inventory is rated Reasonable Purchase, in response to analysts, with three Buys and 5 Maintain scores assigned up to now three months. The average Abercrombie & Fitch stock price target is $133.75 with a excessive forecast of $155.00 and a low forecast of $103.00. The common worth goal represents a 15.4% change from the final worth of $114.09.

The Backside Line on ANF Inventory
Abercrombie & Fitch has undergone probably the most spectacular model turnarounds lately. The Abercrombie model has gone from America’s most hated one to an inclusive all-American retailer that continues to develop gross sales and usher in new clients.
Regardless of broadly buying and selling according to its friends, the corporate has a powerful money place, manageable debt, and momentum on its aspect. The corporate simply retains shocking to the upside, and with sturdy U.S. retail gross sales knowledge all through February and March, I’m backing it to outperform once more.