On Friday, Raymond (NS:RYMD) James initiated coverage on shares of Abercrombie & Fitch Co. (NYSE:ANF) by assigning an Outperform rating and setting a price target of $180.00. The firm's analysis suggests a favorable outlook for the retailer, anticipating higher earnings per share (EPS) and revenue growth than the consensus estimates.
The financial institution projects that Abercrombie & Fitch will achieve an EPS of $12.00 for the fiscal year 2025, which surpasses the street's expectation of $11.21. This forecast is based on a revenue increase of 8% for the same period, slightly ahead of the consensus of 7%.
These figures reflect the company's successful revamp in recent years, which includes product improvement, customer base expansion, store optimization, and enhanced digital and in-store experiences.
The analyst noted that Abercrombie, accounting for 51% of the company’s revenue, experienced acceleration in 2023, with expectations of continued robust growth of approximately 7% into 2025. Hollister, which represents 49% of revenue, is expected to follow a similar growth trajectory, with an estimated 8.4% increase in FY24, suggesting potential outperformance against market expectations.
From 2019 to 2023, Abercrombie & Fitch saw its EBIT% margins expand by 910 basis points. While market forecasts for FY25 suggest a marginal decline of 10 basis points, Raymond James estimates an increase of 50 basis points.
The analysis indicates that Abercrombie & Fitch's margin expansion potential is not fully recognized by the market, especially as strong revenue growth could leverage operating expenses and international operations could scale effectively.
The company's financial health is further underscored by a solid balance sheet and robust free cash flow generation. According to the analyst, this positions Abercrombie & Fitch to potentially increase its focus on shareholder returns through buybacks.
In conclusion, the financial firm's positive stance on Abercrombie & Fitch is underpinned by anticipated improvements across top-line growth, margins, and shareholder returns.
In other recent news, Abercrombie & Fitch experienced a remarkable third quarter, posting record net sales of $1.2 billion, a 14% increase from the same period last year.
The growth was evenly distributed across regions and brands, with both Abercrombie and Hollister brands contributing significantly. The operating income also saw a notable rise, and the full-year sales outlook has been adjusted upwards in response to these results.
The company's Q3 highlights include a gross profit rate of 65.1%, the highest for a third quarter since 2010, and an operating income surge of 30% to reach $179 million. The company's sales growth was impressive across the Americas with 14%, EMEA with 15%, and APAC with a striking 32%.
In terms of future expectations, Abercrombie & Fitch has increased its full-year sales growth forecast to between 14% and 15%, with an anticipated operating margin of around 15%. The company also plans to open approximately 40 new Abercrombie stores and 20 new Hollister stores. These recent developments underscore the company's commitment to sustainable growth and its confidence in maintaining this momentum.
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