Abercrombie & Fitch Exceeds Q1 Expectations, Shares Rise 15%

Abercrombie & Fitch (NYSE: ANF) reported Q1 results on May 28 that surpassed analyst expectations, raising shares by 15%. However, on May 29, shares fell back to $83, remaining 44% below their year-to-date peak and lagging behind the S&P 500’s 0.6% gain. This performance illustrates strong operational results despite macroeconomic challenges, although investors remain cautious due to revised margin and earnings guidance for FY 2025.

In the last three years, ANF’s stock more than doubled from roughly $35 in early 2022 to nearly $85 today. This growth is driven by a 155% increase in earnings per share, from $4.20 in 2021 to $10.69 expected in 2024. For Q1 FY25, the company achieved an EPS of $1.59 from revenues of $1.10 billion, surpassing forecasts of $1.39 EPS and $1.07 billion in revenue. Despite notable earnings growth, valuation multiples present a cautious perspective: the trailing P/E ratio expanded to 11x in 2024 but has since decreased to 8x, indicating investor worries about long-term sustainability and external risks.

Driving Forces Behind Abercrombie & Fitch’s Earnings Growth

Abercrombie’s brand resurgence is attributed to its store revamp, expanded appeal, and focus on digital and global growth. Sales for the Abercrombie brand grew at an 18% CAGR from 2021 to 2024, outpacing the company’s 10% overall growth rate. Meanwhile, Hollister had an 8% CAGR, benefiting from strong interest among Gen Z and an improved women’s lineup. Operating margins rose sharply from 9.2% to 15.0%, while a 15% reduction in shares outstanding contributed to a 155% growth in EPS, far exceeding revenue increases.

However, Q1 results showed mixed outcomes: Abercrombie brand sales dropped by 4%, with same-store sales down 10% due to lower pricing and challenging year-ago comparables. Conversely, Hollister continued its strong performance with an additional 22% sales increase and 23% in same-store sales. Operating margin stood at 9.3%, below last year’s 12.7% but above expectations. The company’s inventory value increased by 21%, setting the stage for a stronger second half.

Revised 2025 Guidance Affects Valuation

For the full year, EPS guidance has been lowered to a range of $9.50 to $10.50, down from $10.40 to $11.40, while operating margins are now expected between 12.5% and 13.5%, revised from 14% to 15%. Tariff costs of $50 million are anticipated to decrease margins by 100 basis points. Without significant price hikes and a flat outlook for average unit retail in 2025, ANF forecasts net sales growth of 3% to 6% across all regions. The management plans to enhance shareholder value through a $1.3 billion buyback program, having already repurchased $200 million in Q1, leaving $1.1 billion remaining.

Market Volatility and Future Potential

ANF has experienced significant stock fluctuations, posting +71% in 2021, -34% in 2022, +285% in 2023, and +69% in 2024. The sharp decline in 2025 reflects investor skepticism amidst macro challenges and tariff concerns. However, with a P/E of just 8x—lower than the four-year average of 14x—and solid earnings potential, the stock may present substantial upside if management successfully manages these obstacles.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.