On Tuesday, Citi adjusted its price target on Abercrombie & Fitch shares, traded on the New York Stock Exchange under the ticker NYSE:ANF, increasing it to $150 from the previous $140 while maintaining a Neutral rating.
The firm anticipates a significant earnings per share (EPS) beat against consensus in the first quarter, citing strong sales and gross margin (GM) as the primary drivers.
The expectation for Abercrombie & Fitch is that the company sustained its double-digit growth momentum into the first quarter, with a notable acceleration in comparable store sales at Hollister due to favorable customer reactions to the brand's latest fashion offerings.
A pullback on promotions at Hollister is also expected to contribute to robust average unit retail (AUR) growth, further enhancing gross margins.
Management at Abercrombie & Fitch is expected to upgrade their fiscal year 2024 sales guidance from the current projection of 4-6% growth to a new range of 7-8%. This adjustment implies an EPS guidance range of $8.00-8.30, compared to the consensus estimate of $7.76 and the buy-side expectation of over $10.00.
The financial position of Abercrombie & Fitch is also a point of focus, with the company ending fiscal year 2023 with approximately $700 million in net cash.
With another year of strong free cash flow anticipated, the firm is poised to pay off its remaining $223 million in debt during the second quarter and potentially increase share repurchase activities thereafter. Citi estimates that lower interest expenses and share buybacks could add approximately $0.35 to the annualized EPS.
Despite the positive outlook for Abercrombie & Fitch, Citi notes that high expectations and a crowded stock may indicate a balanced risk/reward scenario for investors.
InvestingPro Insights
Following Citi's optimistic assessment of Abercrombie & Fitch's (NYSE:ANF) prospects, current metrics from InvestingPro reinforce the potential for continued financial health and growth for the company. With a market capitalization of approximately $7.4 billion and a robust revenue growth of 15.76% over the last twelve months as of Q4 2024, Abercrombie & Fitch is demonstrating its ability to expand its financial base significantly.
The company's gross profit margin impresses at 62.92%, suggesting efficient cost management and strong pricing power, which aligns with Citi's expectation of a gross margin-driven EPS beat. Additionally, Abercrombie & Fitch's stock price is trading near its 52-week high, at 99% of this peak, reflecting investor confidence and the stock's strong performance.
InvestingPro Tips reveal that analysts have recently revised their earnings upwards for the upcoming period, and the company operates with a moderate level of debt, which is a positive sign for financial stability. Moreover, Abercrombie & Fitch's cash flows can sufficiently cover interest payments, further solidifying its fiscal standing.
For investors looking to delve deeper into Abercrombie & Fitch's performance and future outlook, InvestingPro offers additional tips and insights. There are currently 18 more InvestingPro Tips available, which can be accessed through InvestingPro. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of data and analytics to inform your investment decisions.
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