Citi raises Abercrombie & Fitch price target to $105

On Thursday, Citi analyst Paul Lejeuz increased the price target on Abercrombie & Fitch (NYSE:ANF) shares to $105.00 from $98.00, while reiterating a Buy rating on the stock. This adjustment followed a robust first-quarter earnings per share (EPS) of $1.59, surpassing consensus expectations due to stronger sales, although gross margins were below consensus due to higher promotions at Abercrombie & Fitch.

The company’s shares saw a significant leap, trading up 15%, after management provided an optimistic forecast for fiscal year 2025, projecting EPS to be between $9.50 and $10.50. This outlook was more favorable than the bearish market prediction of $7.00 to $8.00. Additionally, second-quarter sales are anticipated to exceed market expectations, with a growth target of 3-5%. Trading at a P/E ratio of just 7.58, InvestingPro analysis suggests the stock is currently undervalued relative to its growth potential, with 14 additional ProTips available for subscribers.

Despite Abercrombie & Fitch’s first-quarter comparable sales falling 10%, below management’s own projections, and an expectation of continued gross margin pressure in the second quarter due to higher inventory levels, the fiscal year 2025 guidance is based on the assumption that sales will rebound in the second half of the year. The company also expects the current gross margin pressures from higher inventories to ease, while trends and average unit retails (AURs) at Hollister are predicted to remain strong, albeit with some deceleration compared to the first half.

Citi’s analysis suggests that although there is some skepticism regarding the improvement in Abercrombie & Fitch trends and AURs in the second half, Abercrombie & Fitch has the flexibility to protect its margin downside. This is due in part to well-managed selling, general and administrative expenses in the first quarter, and the strength at Hollister helping to counterbalance pressures at Abercrombie & Fitch. Furthermore, Abercrombie & Fitch’s cash position, which is roughly 15% of market capitalization even after a repurchase of $200 million worth of shares (5% of shares) in the first quarter, supports a favorable risk/reward scenario as per the analyst’s comments.

In other recent news, Abercrombie & Fitch reported strong first-quarter financial results for fiscal year 2025, with earnings per share (EPS) of $1.59, surpassing consensus estimates of $1.37. Revenue for the quarter was $1.10 billion, marking an 8% year-over-year increase, although slightly below the forecasted $1.08 billion. The Hollister brand, a significant contributor to the company’s performance, saw a 22% rise in net sales, outperforming expectations. Despite these positive outcomes, Abercrombie & Fitch’s own brand experienced a 4% decline in sales and a 10% drop in comparable sales, attributed to a reduction in average unit retail prices due to carryover inventory.

Analysts have varied opinions on the company’s future. CFRA’s Zachary Warring cut the price target to $152 but maintained a Strong Buy rating, while Citi and Raymond (NSE:RYMD) James kept their Buy and Outperform ratings with targets of $98 and $90, respectively. Abercrombie & Fitch has also adjusted its fiscal year 2025 earnings guidance to a midpoint of $10.00, reflecting higher-than-expected earnings despite ongoing gross margin pressure. The company engaged in stock buybacks worth $200 million during the quarter, which contributed to a significant pre-market share price increase.

Looking ahead, Abercrombie & Fitch anticipates full-year revenue growth of 3% to 6% and plans to open 60 new stores in 2025. The company is also addressing tariff impacts estimated at $50 million, with efforts to mitigate these costs through strategic supply chain adjustments. Overall, Abercrombie & Fitch’s recent developments indicate a strong performance in certain areas, with ongoing efforts to address challenges in others.

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