Abercrombie & Fitch (ANF) stock suffered a harsh reversal this year, erasing some of the gains made last year, when it was one of the best-performing companies in Wall Street. It has retreated to $130, its lowest point since Oct. 3, and 33% below its highest level this year.
Growth concerns remain
Abercrombie & Fitch, the parent company of it eponymous brand, Hollister, and Gilly Hicks, has gone through a difficult year as it failed to replicate its success in 2023.
It is not alone as other apparel companies have struggled. Lululemon, the biggest athleisure brand, has dropped by over 37% from its highest level this year.
Similarly, Gap stock remains in a deep correction after falling by 30% from the year-to-date high. Other firms like American Eagle, American Outfitters, and Boot Barn have all pulled back, a sign that the weak consumer spending is to blame.
Abercrombie & Fitch’s business has done well in the past few years as its revenue growth has recovered modestly. This happened as the management accelerated its product launches while attracting many of the young shoppers.
ANF’s annual revenue has rebounded from $3.2 billion in 2020 to $4.2 billion las year, a trend that has continued this year.
The most recent results showed that its second-quarter revenue rose by 21% to $1.1 billion, while its comparable sales growth rose to 18%. This revenue growth happened across all its regions and brands.
Abercrombie also boosted its margins by 590 basis points to 15.5%, pushing its operating income to $176 million.
The management expects that its annual revenue growth will be between 12% and 13% and its operating margin will be between 14% and 15%.
Read more: Abercrombie & Fitch stock: the moment of clarity nears
ANF earnings ahead
The next important catalyst for the Abercrombie & Fitch stock will be its third-quarter earnings that will come out on Nov. 29.
These results will provide more color on its performance, and whether the business is still firing on all cylinders.
Analysts are optimistic that its business trajectory was in the right direction in the last quarter, with the average revenue estimate being $1.18 billion. The firm will likely report stronger numbers since it has beaten the consensus in the past few consecutive quarters. As such, I suspect that the revenue will be about $1.19 billion.
External data shows that its e-commerce platforms continued to see modest traffic, which may translate into sales. In September, its main website had 17 million visitors, while Hollister had 14 million.
The revenue guidance for the fourth quarter will be $1.51 billion. That will bring the annual revenue to $4.85 billion, a 13.3% increase from last year. Its 2025 revenue is expected to slow to 5.2% to $5.1 billion.
Abercrombie & Fitch has also been a highly profitable company, with the expected earnings per share expected to be $2.37, higher than the $1.83 it made in the same quarter last year.
The annual EPS is expected to jump sharply from $6.28 in 2023 to $10.36 this year. This is a strong performance for a company that struggled to attain profitability a few years ago.
ANF also has a strong balance sheet. It ended last quarter with over $738 million in cash and short-term investment and no debt. Its biggest part of its liabilities is its capital leases, which stood at $688 million. It ended the last quarter with total liquidity of $1.2 billion.
Abercrombie is still a fairly undervalued company since it has a forward price-to-earnings ratio of 12.8, much lower than the S&P 500 average of 21. It is also cheaper than some other apparel companies like Boot and Aritzia.
Read more: Abercrombie & Fitch (ANF): insiders are selling the stock
Abercrombie & Fitch stock analysis
ANF chart by TradingView
The daily chart shows that the ANF share price peaked at $143.42 earlier this year and then moved into a deep correction as it fell to $127. It has found a strong support at this level since it has failed to move below it several times since August 2nd.
Abercrombie & Fitch has moved below the 50-day and 100-day Exponential Moving Averages (EMA). It is also approaching the 38.2% Fibonacci Retracement point.
Also, the MACD and the Relative Strength Index (RSI) have all pointed downwards. It has also formed a descending triangle pattern, a popular bearish sign.
Therefore, while the ANF stock is cheap, there is a likelihood that it will have a bearish breakout, with the next point to watch being at the 50% retracement point at $105, which is about 20% below the current level. This view will be confirmed if the price moves below the lower side of the triangle at $127.
On the flip side, a rebound above the 50-day moving average at $143 will point to more gains, potentially to $167, its highest level on Oct. 17.
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