In 2023, Abercrombie & Fitch jeans were not the only hot commodity – the retailer’s stock was on fire as well. However, while the company’s clothing remains trendy in 2024, the future of its stock is less certain.
Impressively, Abercrombie shares skyrocketed by 285% in 2023, driving the stock price to levels even surpassing its mid-2000s heyday. Not only did this represent the largest annual percentage increase ever recorded for the stock, but it also outperformed the top performers in the S&P 500, including Nvidia and Meta Platforms, which gained 234% and 194% respectively.
This remarkable performance marked a significant turnaround from the challenges faced in 2022 when the company grappled with supply-chain issues and suffered from the impact of inflation on consumer spending, causing a 34% decline in stock value.
Fortunately, these issues subsided throughout 2023, leading to three consecutive quarters of better-than-expected earnings reports. Abercrombie stands out as one of the few retailers to elevate their fiscal year guidance in the latest quarter. Furthermore, preliminary data hints that Abercrombie could emerge as one of the winners of the holiday season, as previously reported. These outstanding results from the past year also demonstrate how Abercrombie successfully revitalized its brand image and emerged as a go-to choice for younger, affluent consumers after a slump in the mid-2010s.
Through these impressive achievements, Abercrombie & Fitch has regained its position as a formidable player in the retail industry.
Abercrombie & Fitch: Can the Stock’s Momentum Continue?
Multiyear efforts spanning marketing, product, and in-store presentation have yielded distinctive brands that strongly resonate with their particular audiences. This observation comes from Jefferies analyst Corey Tarlowe, who, in a note, shares his optimism about Abercrombie & Fitch’s future. Tarlowe has a Buy rating on the stock and has recently raised his price target for the shares to $85 from $80, following the company’s impressive third-quarter results.
However, despite Tarlowe’s confidence in the stock, many analysts on Wall Street remain hesitant. FactSet data reveals that only a third of analysts have Buy ratings on the shares, while two-thirds rate them a Hold.
So, what’s the cause of this hesitancy? Analysts believe that Abercrombie & Fitch could potentially become a victim of its own success.
Morgan Stanley analyst Alex Straton points out that there is an “equal probability” that the stock’s momentum will continue or see some of its gains reverse in 2023.
“We continue to see risk with every passing quarter that current growth & profitability levels will be difficult to sustain, & that both and/or either banner could succumb to fashion cyclicality—thereby pressuring margins,” warns Straton in a research note following Abercrombie’s third-quarter earnings. Straton has reiterated an Equal-Weight rating on the shares.
Despite these concerns, Abercrombie & Fitch had a strong start to the new year, with its shares closing 3.1% higher even as the S&P 500 experienced a slight dip of 0.6%.
In conclusion, while some analysts are cautious about Abercrombie & Fitch’s future prospects, others remain optimistic. Only time will tell if the current growth and profitability levels can be sustained in the face of potential fashion cyclicality. Investors and industry watchers will be keeping a close eye on the stock in the coming months.