Abercrombie & Fitch's Ability To Lean Into Trends Amid Normalized Supply Chain: Analyst Sees Cleaner Inventories

Telsey Advisory Group analyst Dana Telsey reiterated an Outperform rating on Abercrombie & Fitch Company ANF, raising the price target to $47 from $35.

ANF will report 2Q23 results on Wednesday, August 23. 

On the top line, the analyst looks for total revenue to increase 5.2% Y/Y to $847 million, slightly ahead of the consensus of $839 million. For the quarter, ANF guided sales to be up 4%-6% Y/Y.

By brand, the analyst's topline estimate reflects 11.1% Y/Y growth at Abercrombie in the quarter and flat Y/Y growth at Hollister.

The A&F brand remains healthy with a more resilient customer base and robust assortment, notes the analyst. 

At the same time, Hollister can continue to improve as the year progresses with cleaner inventories and the ability to lean into trends with a more normalized supply chain, Telsey adds.

Below the top line, the analyst looks for 250 bps of gross margin expansion to 60.4% in the second quarter, as compared to the consensus of 60.3%. 

Telsey looks for total operating expense dollars to increase 5% Y/Y to $489 million in the quarter to be reported, vs. the consensus of up 4.3% Y/Y. 

Telsey expects the operating expenses to leverage 10 bps Y/Y to 57.5% as a percentage of sales versus the consensus forecast of 57.9% (flat Y/Y).

The analyst estimates 260 bps of operating margin expansion to 2.6%, compared to the consensus of 2.4% (company guidance for a margin between 2%-3% vs. 0.0% last year). 

Overall, ANF expressed optimism about the brand's positioning and plans to chase inventory to support future growth, the analyst adds.

Price Action: ANF shares are trading higher by 2.27% to $42.37 on the last checked Wednesday.