Citi cuts Abercrombie stock target to $135, keeps Buy rating

On Thursday, Citi analyst Paul Lejeuz revised the price target for Abercrombie & Fitch (NYSE:ANF) shares, reducing it to $135 from the previous $160, while maintaining a Buy rating on the stock. The adjustment follows the company’s fourth-quarter earnings per share (EPS) of $3.57, which surpassed consensus expectations due to stronger sales. However, gross margin (GM) was reported to be weaker than consensus, attributed to increased promotions and freight costs for Abercrombie & Fitch.

Lejeuz noted that the company’s elevated inventory levels at the end of the fourth quarter and higher promotions and freight costs are expected to reduce first-quarter EBIT margin by 400 basis points. For fiscal year 2025, Abercrombie & Fitch forecasts lower markdown pressure on gross margin after the first quarter, assuming average unit retail (AUR) prices will remain flat.

Management indicated that higher clearance inventory for Abercrombie & Fitch will lead to more normalized markdowns during the spring transition, as opposed to historically low markdowns last year. This suggests that markdowns will be concentrated in the first quarter, although the market may remain skeptical of this outlook.

Quarter-to-date, Abercrombie & Fitch’s comparable sales (comps) are slightly negative, facing the toughest comparisons of the year, with adverse weather impacting results. However, the majority of the spring selling season lies ahead, which could potentially accelerate comps and reduce markdown pressure.

Lejeuz also pointed out that Hollister, a brand under Abercrombie & Fitch, is performing very strongly, which may limit the downside for sales and EPS. With the stock currently trading at a fiscal year 2025 estimated price-to-earnings (P/E) multiple of 7.5x, Citi sees a favorable risk/reward scenario for Abercrombie & Fitch at its current price levels.

In other recent news, Abercrombie & Fitch reported its first-quarter 2025 earnings, exceeding expectations with an earnings per share (EPS) of $3.57, slightly above the forecast of $3.56. The company also reported revenues of $1.58 billion, surpassing the anticipated $1.56 billion. Despite these positive earnings results, the stock saw a pre-market decline, likely due to broader market concerns. Analysts have provided varied outlooks on Abercrombie & Fitch, with JPMorgan’s Matt Boss lowering the price target from $189 to $168 while maintaining an Overweight rating, citing strong global customer acquisition and a promising future for the Hollister brand. Meanwhile, Jefferies’ Corey Tarlowe adjusted the price target to $170 from $220, maintaining a Buy rating, and highlighted temporary challenges such as inventory issues and markdowns. Tarlowe also expressed confidence in the company’s potential to achieve a 15% EBIT margin by 2025. The company reported a strong 16% growth in net sales for the full year, driven by successful product launches and strategic partnerships, and is projecting a 3-5% net sales growth for 2025.

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