Analyst Takes Down Abercrombie & Fitch Price Forecast By 34% Despite Being Bullish - Here's Why

Telsey Advisory analyst Dana Telsey reiterated an Outperform rating on the shares of Abercrombie & Fitch Co ANF but lowered the price target from $190.00 to $125.00, citing greater macro uncertainty.

ANF ended FY24 with strong results, surpassing both top and bottom-line expectations, despite a slight dip in gross margin in the fourth quarter.

The company has shown consistent growth across both A&F and Hollister brands. While concerns about margin and consumer confidence persist, ANF's strong holiday performance, upcoming share repurchase program, and low valuation support the current outlook, said the analyst.

Management expects FY25 net sales growth of 3% – 5%, driven by regional and brand expansion, with a 70-basis-point FX headwind. Operating margin is forecasted between 14% – 15%, with the first half impacted by higher freight costs and inventory selling, and the second half benefiting from lower freight costs.

The ANF outlook accounts for the impact of newly announced tariffs on China, Canada, and Mexico, which are expected to reduce operating margin by approximately $5 million for the year.

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ANF sources products from 17 countries and has a flexible supply chain capable of quickly adapting to demand changes and trends, the analyst noted.

The company plans to continue its growth with a fourth consecutive year of net store openings, adding 100 new locations in FY25.

The company ended FY24 with 789 stores, including 278 Abercrombie and 511 Hollister outlets, and a 2% increase in square footage.

In FY24, ANF delivered 125 new experiences, closed 41, and saw improved store productivity, achieving a fleet four-wall operating margin of approximately 30%. FY25 will focus on 60 new openings, 20 closures, and 40 remodels.

Inventories increased by 22.5% year-over-year versus the 9.1% topline growth for the period. This follows a 16.4% inventory rise in the prior quarter.

The inventory growth was driven by a 6% increase in units to support projected first-quarter FY25 sales growth of 4% – 6%, along with higher freight expenses, more seasonal carryover, and shifts in product mix, particularly in dresses and licensed merchandise.

After the modest fourth-quarter earnings beat and factoring in first-quarter and FY25 guidance, the analyst projects FY25 consolidated comp growth of 2%, down from the previous estimate of 3.5%. The EPS estimate is at $11.35, slightly up from $11.30.

Price Action: ANF shares are trading lower by 3.59% at $84.10 at last check Thursday.

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