Abercrombie & Fitch's Long-Term Margin Expansion Opportunity Impresses This Analyst

Telsey Advisory Group analyst Dana Telsey reiterated an Outperform rating on the shares of Abercrombie & Fitch Co ANF and raised the price target from $27 to $33.
Yesterday before the market open, ahead of the company's investor meetings at the ICR conference, ANF updated its 4Q22 and FY22 guidance.
For the quarter, ANF now expects sales to increase 1%-2% Y/Y vs. $1.161 billion in 4Q21, up from a 2-4% YoY decline previously.
The updated outlook reflects continued momentum across the Abercrombie & Fitch brand and sequentially improving sales trends at Hollister, the analyst noted.
During the quarter, ANF noted that it experienced big surges on Black Friday and Cyber Monday, followed by lulls leading up to Christmas.
At the Abercrombie & Fitch brand, women's is expected to deliver its highest fourth quarter sales ever.
While Hollister's sales are still expected to decline YoY in 4Q22, trends have improved from last quarter, given assortment adjustments and personnel changes, the analyst said.
The analyst said geographically, North America was stronger, APAC had significant COVID flare-ups but the region seems to be returning to normal, and EMEA is still experiencing macro pressures, although a warmer winter to-date has likely benefited the region.
Management targets roughly flat YoY inventory growth exiting FY22, allowing the company to be in chase mode for the spring.
Telsey sees ANF's report as encouraging, with a top and bottom line raise despite a challenging global macro environment.
The analyst continues to see a long-term margin expansion opportunity through a more productive store footprint and expanding digital penetration.
Price Action: ANF shares are trading lower by 1.24% at $27.06 on the last check Tuesday.
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