Citi sees strong Q2 for Abercrombie & Fitch stock despite market concerns

On Tuesday, Citi reiterated its Neutral rating on Abercrombie & Fitch Co. (NYSE:ANF) stock with a steady price target of $190. The firm's outlook remains unchanged ahead of the company's second-quarter earnings report, which is expected before the market opens on August 28.

The analyst from Citi predicts another robust earnings per share (EPS) performance, surpassing consensus estimates, propelled by solid sales and gross margin (GM) due to well-received fashion trends at both Abercrombie & Fitch and Hollister brands, and particularly noting an uptick in Hollister Men's sales.

The forecast includes a continuation of double-digit comparable sales growth into the second quarter, with both brands strategically reducing promotions to boost average unit retail (AUR) and, consequently, gross margins.

Management is anticipated to revise its fiscal year 2024 sales guidance upward, from a 10% increase to 12%, which suggests a potential F24 EPS guidance of over $10.00. This figure contrasts with the current consensus of $9.78 and a more optimistic expectation from bullish investors of over $10.50.

Despite a downturn in the stock price following weaker third-party credit card data in July, the analyst sees no evidence of declining momentum within the company. The report suggests significant potential for earnings to outperform consensus estimates for the current year.

The risk/reward balance is deemed favorable as the second-quarter earnings report approaches, prompting Citi to initiate a 30-day positive catalyst watch for Abercrombie & Fitch.

In other recent news, Abercrombie & Fitch Co. has seen several significant developments. The company reported a historic first quarter, with net sales reaching $1 billion and an operating income of $130 million, a 22% increase in sales year-over-year.

Additionally, Abercrombie & Fitch expanded its credit facility to $500 million, enhancing the company's financial flexibility and supporting its international operations.

In a strategic move, Abercrombie & Fitch fully redeemed its 8.75% Senior Secured Notes due 2025, with a principal amount of $213,906,000, aligning with its strategy to manage its debt profile and reduce interest expenses. JPMorgan upgraded Abercrombie & Fitch's stock from Neutral to Overweight, anticipating continued widespread demand for the brand.

In another development, Abercrombie & Fitch announced a partnership with Haddad Brands to expand the global distribution and product range of its abercrombie kids line.

The expanded offerings are expected to reach Haddad Brands’ global showrooms by the Fall/Back to School 2025 season. These are among the recent developments for Abercrombie & Fitch.

InvestingPro Insights

As Abercrombie & Fitch Co. (NYSE:ANF) gears up for its second-quarter earnings report, InvestingPro data paints a promising picture of the company's financial health. With a market capitalization of $8.53 billion and a P/E ratio that has been holding steady at 19.99, the company's valuation metrics are in line with industry standards. The adjusted P/E ratio for the last twelve months as of Q1 2025 further confirms this stability, sitting at 19.76.

InvestingPro Tips highlight the company's impressive gross profit margins, which reached 64.07% in the last twelve months as of Q1 2025. This financial strength is further underscored by a robust return on assets of 15.65% for the same period. These figures are indicative of Abercrombie & Fitch's ability to convert sales into profits efficiently, an important factor as the company continues to navigate the competitive retail landscape.

Moreover, the stock has experienced significant returns over the last week, with a price total return of 8.66%. This momentum is part of a larger trend, as evidenced by the 286.27% return over the past year, showcasing the stock's strong performance and investor confidence. For those interested in further analysis and additional InvestingPro Tips, there are 15 more tips available, providing investors with a comprehensive understanding of Abercrombie & Fitch's investment potential as they await the upcoming earnings report.

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