Abercrombie & Fitch Company ANF has been witnessing a downtrend in recent months, driven by strong but slowed sales performance, pressures from elevated operating costs and higher freight costs. Additionally, the company expects current U.S. tariffs on imports from China, Canada and Mexico, and other potential incremental tariffs to hurt its performance in the quarters ahead. However, ANF’s current forward 12-month price-to-earnings (P/E) multiple of 6.53X reflects a discount relative to the Zacks Retail - Apparel and Shoes industry’s average of 13.81X, making the stock attractive from a valuation perspective.
Abercrombie’s price-to-sales (P/S) ratio of 0.68X, also below the industry’s 1.28X, adds to investor expectations, especially considering its Value Score of A, which suggests that the stock may be a strong value proposition at current levels.
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Abercrombie’s Discounted Valuation Vs Peers
At 6.53X P/E, Abercrombie, which is a leading name in the retail apparel industry, is trading at a valuation much lower than its competitors. Its competitors, such as American Eagle Outfitters, Inc. AEO, The Gap, Inc. GAP and Urban Outfitters Inc. URBN, are delivering solid growth and trade at higher multiples. American Eagle, Gap and Urban Outfitters have forward 12-month P/E ratios of 7.02X, 7.94X and 10.12X — all significantly higher than Abercrombie.
The stock's discounted valuation reflects strong potential for growth compared with its overvalued peers. Despite the broader market uncertainties, the Abercrombie stock looks poised to benefit from solid brand performances, driven by its focus on high-quality, trend-forward assortments that appeal to both new and loyal customers. Management’s commitment to product innovation and quality has been a key factor in sustaining its success.
Is ANF’s Stock Performance Impressive?
In the year-to-date period, Abercrombie’s shares have lost 51.3% compared with the broader industry’s decline of 29.4%. The company has also underperformed the Zacks Retail-Wholesale sector’s decline of 8.1% and the S&P 500’s fall of 10.5%.
ANF’s performance is notably weaker than its competitors, American Eagle, Gap and Urban Outfitters, which have declined 35.6%, 19.2% and 12.7%, respectively, in the year-to-date period.
Abercrombie’s YTD Stock Return
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ANF’s current share price of $72.77 reflects a 63.1% discount to its recent 52-week high mark of $196.99. Also, the stock reflects an 11.3% premium from its 52-week low of $65.40. Abercrombie trades below its 50 and 200-day moving averages, indicating a bearish sentiment.
With an attractive valuation and declining share price, it remains to be seen how much potential the stock holds at the current levels.
Decoding Why Abercrombie’s Stock Has Lost Sheen
The ANF stock’s decline reflects concerns over its decelerating sales momentum despite a solid performance. While net sales rose 9% in the fourth quarter of fiscal 2024, driven by strong traffic and double-digit comparable sales growth across regions, this marked a sharp slowdown from 21% growth in the prior-year quarter and the 14% increase in third-quarter fiscal 2024. The cooling pace underscores the company’s transition out of its high-growth phase experienced in fiscal 2023.
Abercrombie’s fiscal 2025 guidance points to continued moderation. The company forecasts fiscal 2025 sales growth of 3-5%, a notable pullback from the 16% gain reported in fiscal 2024. For the first quarter of fiscal 2025, expected sales growth of 4-6% also trails the 22% jump posted in the same period last year.
Margins are facing pressure from rising freight costs. In the fiscal fourth quarter, the gross margin declined 140 basis points year over year to 61.5%, as benefits from stronger average unit retail, driven by reduced discounting, were outweighed by elevated freight costs, including increased air freight use to improve delivery times. The company anticipates these higher freight costs to continue to impact margins in the first half of fiscal 2025, along with the effects of more normalized inventory sell-through. However, margins are expected to improve in the second half of fiscal 2025, supported by easing freight costs versus the prior-year period.
As a result, Abercrombie projects a fiscal 2025 operating margin of 14-15%, whereas it reported 15% in fiscal 2024. For the first quarter of fiscal 2025, the operating margin is expected to be 8-9%, suggesting a sharp decline from 12.7% a year ago.
The earnings guidance also reflects a challenging near-term outlook. The company expects first-quarter fiscal 2025 EPS of $1.25-$1.45, indicating a significant decline from the $2.14 reported in the same quarter last year. For fiscal 2025, the projected EPS stands between $10.40 and $11.40, bracketing the $10.69 achieved in fiscal 2024.
Investor sentiment is further dampened by concerns over tariff-related headwinds. Abercrombie has factored in an estimated $5-million impact from recently imposed U.S. tariffs on imports from China, Canada and Mexico. However, the company’s outlook does not account for potential future tariffs that may arise from retaliatory trade measures, leaving room for additional downside risks.
ANF’s Estimate Revision Trend
Abercrombie’s EPS estimates for fiscal 2025 and 2026 reflect downward revisions following the soft outlook. The Zacks Consensus Estimate for its fiscal 2025 and 2026 EPS declined 0.4% and 0.5%, respectively, in the last seven days. The downward revision in earnings estimates indicates that analysts have been losing faith in the company’s growth potential.
The Zacks Consensus Estimate for ANF’s fiscal 2025 sales and EPS suggests year-over-year growth of 4.4% and 3%, respectively. For fiscal 2026, the Zacks Consensus Estimate for ANF’s sales and EPS implies 3.6% and 5.5% year-over-year growth, respectively. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
While sales growth has moderated, ANF’s long-term outlook remains compelling. The company continues to thrive on the strength of its brands, supported by a focus on premium, trend-right assortments that resonate with loyal shoppers and a new generation of customers. A relentless emphasis on product innovation and quality has played a central role in maintaining brand relevance and market momentum.
Strategic investments in physical retail, digital capabilities and technology are enhancing Abercrombie’s competitive position. The company has capitalized on favorable fashion trends and optimized store operations to drive increased foot traffic. Modernized store designs offer a more engaging and elevated shopping experience, while advancements in e-commerce, such as improved personalization and intuitive navigation, are enabling a seamless omnichannel journey.
In line with shifting consumer behavior, Abercrombie is reimagining its retail footprint by converting flagship stores into smaller, digitally integrated locations. This move reflects a thoughtful realignment with customer preferences and supports a more agile, efficient growth model. Altogether, these initiatives position the company for sustained profitability and long-term value creation for shareholders.
Should You Buy the ANF Stock?
Abercrombie’s slowing sales growth, tariff headwinds and disappointing sales and EPS guidance have understandably raised investor concerns. These near-term challenges, coupled with rising freight costs, create headwinds that warrant caution. However, the stock’s undervaluation relative to peers, combined with ANF’s long-term growth potential, transformation strategies and financial resilience, offer reasons for optimism. The company’s focus on brand strength, digital enhancements and store optimization positions it well for success.
For investors seeking exposure to the apparel industry, Abercrombie’s recent stock decline presents a buying opportunity. However, given the near-term pressures, a careful assessment of risks and rewards is essential. The stock currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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