Barclays sets Abercrombie stock at Equalweight, $71 price target

On Monday, Barclays (LON:BARC) began coverage on Abercrombie & Fitch shares (NYSE:ANF) with an Equalweight rating and set a price target of $71.00. The initiation of coverage is based on several factors, including the brand’s strong performance and growth opportunities, balanced against certain challenges that may affect profitability.

Abercrombie & Fitch has demonstrated robust brand appeal, with comparable sales growth in the mid-to-high teens across all regions and brands in the fiscal year 2024. This growth is attributed to the company’s effective omnichannel model, which boasts impressive store margins of around 30%, alongside a profitable digital business with high penetration.

The company’s future growth is expected to be supported by the introduction of new store experiences and expansion into different channels, including wholesale, franchise, and licensing. These strategies are anticipated to continue driving the brand’s momentum.

Despite these positive aspects, Barclays notes several factors that could offset the gains. One concern is the elevated inventory levels Abercrombie & Fitch reported at the end of the fiscal year 2024. The higher seasonal carryover is expected to put pressure on gross margins. Additionally, the brand is likely to face higher freight costs, particularly in the first half of the fiscal year 2025, which could further impact gross margins.

Another challenge is the difficult year-over-year comparisons Abercrombie & Fitch will encounter in the fiscal year 2025. For the first quarter to date, as of March 5, 2025, comparable sales are trending "a bit negative" as the company laps a strong 29% growth in the same quarter of the previous year. Increased marketing expenditures are also anticipated to pressure margins in the first quarter of the fiscal year 2025.

Lastly, the analyst pointed out the ongoing uncertainty surrounding tariffs in the sector, which could have implications for Abercrombie & Fitch and the wider industry.

In other recent news, Abercrombie & Fitch Co. has reported significant financial developments. The company saw a robust revenue growth of 15.6% in fiscal 2024, following a similar increase the previous year, attributed to successful transformation initiatives, according to S&P Global Ratings. Despite this growth, Citi analysts have adjusted the company’s price target from $135 to $98, citing lower sales projections and increased product costs, while maintaining a Buy rating. UBS also revised its price target for Abercrombie & Fitch to $150 from $210, maintaining a Buy rating and highlighting the company’s strong standing in the U.S. Specialty Retail sector. JPMorgan echoed this sentiment by reducing the price target to $168 from $189, while keeping an Overweight rating, emphasizing the brand’s expanded appeal and strong customer acquisition.

The company’s earnings before interest and taxes (EBIT) margin is expected to face pressure, with Citi projecting a decline in fiscal year 2025 due to elevated inventory and higher promotions and freight costs. Despite these challenges, Abercrombie & Fitch’s adjusted EBITDA expanded by over 30% to about $1.2 billion in fiscal 2024, with digital channels contributing to nearly 50% of sales. S&P forecasts a modest decline in margins in 2025 but expects the company to maintain an adjusted EBITDA margin around 24% over the next two years. Abercrombie & Fitch plans to invest in 100 stores and expand through franchise and licensing partnerships, which S&P believes will support future revenue growth.

The company’s Hollister brand is performing strongly, which may help mitigate some of the pressures on sales and earnings per share (EPS). Analysts from Citi and UBS see a favorable risk/reward scenario for investors at current stock levels, despite the market’s concerns over margin pressures. S&P has revised its outlook on Abercrombie & Fitch to positive, citing improved performance and potential for a higher rating if consistent operating performance is maintained.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.