Abercrombie & Fitch (NYSE: ANF), a specialty retailer of casual apparel and footwear, will report its second quarter 2024 earnings results on Wednesday, August 28. (ANF’s 2023 fiscal year ended on February 3, 2024) We expect ANF stock to see little to no movement following second-quarter results, with revenue beating but second-quarter earnings coming in just short of expectations. ANF stock has nearly doubled this year from around $88 to a whopping $165, outperforming the broader indexes, with the S&P up about 18% over the same period. Notably, ANF competitor American Eagle Outfitters (NYSE: AEO) stock has only risen 6% to around $22 over the same period.

First, ANF’s fiscal 2023 earnings came in much higher than expected at $6.22 per share, compared to just 5 cents in fiscal 2022. Operating margin also increased from 2.4% in fiscal 2022 to 11.5% in fiscal 2023. The gains came as ANF reported excellent results in its namesake high-margin unit and better-than-expected momentum at its Hollister brand. In addition, ANF started fiscal 2024 strongly. Abercrombie was expected to earn $1.73 per share on revenue of $963 million in the first quarter (a seasonally weak quarter). Instead, the company earned $2.14 per share and posted revenue of over $1 billion. It is worth noting that ANF trades at a P/E ratio of 21 when comparing the company’s current market capitalization to the net income derived from the company’s forecast for fiscal 2024. We believe this valuation is too high both in absolute terms and relative terms and will be difficult to sustain in the near term given the current high growth rate. ANF stock appears to be fully valued after a strong run. However, the apparel sector is a highly discretionary category, suggesting high sensitivity to macroeconomic conditions.

ANF ​​stock has seen extremely strong gains of 725% from $20 in early January 2021 to around $165 now, compared to a roughly 50% rise for the S&P 500 over that roughly 3-year period. However, ANF stock’s rise has been far from consistent. The stock’s returns were 71% in 2021, -34% in 2022, and 285% in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023 – suggesting that ANF ​​​​lagged behind the S&P in 2022.

Actually, consistently beats the S&P 500 – for better or for worse – has been difficult for individual stocks in recent years; for heavyweights in the consumer discretionary sector such as H, WMG and AMZN and even for megacap stars GOOG, TSLA and MSFT. In contrast, the Trefis High Quality Portfolio with a collection of 30 stocks outperformed the S&P 500 every year in the same period. Why is that? As a group, the HQ Portfolio stocks delivered better returns with less risk compared to the benchmark index; less rollercoaster riding as shown by the HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ANF experience a similar situation as in 2022 and perform worse than the S&P in the next 12 months – or will there be a sharp jump?

Our forecast assumes that ANF will be valued at around $156 per share, which is roughly the current market price. Our interactive dashboard analysis on ANF’s results preview: What awaits us in the second quarter? has further details.

(1) Sales revenue expected to be slightly above consensus estimates

Trefis estimates ANF’s revenue in the second quarter of 2024 to be around $1.2 billion – slightly above the consensus estimate. In the first quarter, ANF grew revenue a strong 22% year over year to $1.02 billion, driven by 21% growth in comparable sales across the company. The company benefited from good pricing management and the right product assortment. In terms of revenue, Hollister saw a 12% increase and the namesake brand saw 31% year over year growth in the first quarter thanks to its strong student demographic and growth in its women’s business.

It’s worth noting that Abercrombie continued its impressive multi-quarter growth trend, while Hollister posted its fourth consecutive quarter of revenue growth. The parent brand has surpassed the Hollister brand as the largest contributor of revenue for the first time in fiscal 2023. In the first-quarter conference call, management increased its guidance for fiscal 2024. It now expects revenue of approximately $4.7 billion (10% above fiscal 2023) and an operating margin of 14%. This translates to operating profit of approximately $560 million.

(2) Earnings per share are expected to slightly exceed consensus estimates

ANF’s earnings per share are expected to be $2.20 in the second quarter of 2024, according to Trefis analysis, just below the consensus estimate. In the first quarter of 2023, robust revenue growth and a 540 basis point increase in the gross profit rate to 66.4% led to an operating margin increase of a record 860 basis points year over year to 12.7%. Consequently, the company’s GAAP earnings per share were $2.23, up from just 33 cents a year ago.

(3) The share price estimate is consistent with the current market price

According to our Review of Abercrombie & FitchWith estimated earnings per share of around $8.37 and a P/E ratio of 18.6 in fiscal 2024, this equates to a price of $156 – roughly equivalent to the current market price.

It’s helpful to see how the competition is doing. ANF Peers shows how Abercrombie & Fitch compares to its competitors on key metrics. For more useful comparisons for companies in different industries, see Peer Comparisons.

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