Abercrombie & Fitch had a blowout quarter — here’s why the stock still tanked.
Retailers have been reporting mixed results this earnings season as some consumers pull back spending while others look for deals. Abercrombie & Fitch (ANF 3.76%) reported record second-quarter net sales and beat analyst sales expectations for the sixth straight quarter.
But the stock still crashed. For the week, Abercrombie stock was down 16% as of Friday morning, according to data provided by S&P Global Market Intelligence. Two things led to the negative reaction from investors. Not the least of which is the astounding 178% gain for shares of the apparel retailer over the last 12 months.
A turnaround story for the ages
Abercrombie reported second-quarter sales soared 21% compared to the prior-year period. That sales growth has been the story for the company over the past year or so. And investors piled in as the formerly struggling company’s turnaround story took hold.
Since becoming CEO in 2017, Fran Horowitz has led an overhaul of the retailer’s brand portfolio, store footprint, and, ultimately, reputation. That continues to pay off, with sales expected to increase by about 12.5% for fiscal 2024. That’s a slight slowdown in growth compared to the 16% increase in 2023.
But the company sees profitability improving compared to fiscal 2023. Management raised its estimate for operating profit margin to be as high as 15% in 2024, compared to 11.3% last year. And the 2023 operating margin was the highest in 15 years for the company.
It’s not surprising for investors to take profits after the huge run in the stock price over the past year. After all, while the turnaround plan has taken hold, sales growth is expected to slow somewhat this year. But this week’s share price drop lowered the forward price-to-earnings (P/E) ratio to below 14 — about the lowest level since this past spring. That offers investors who want exposure to a growing apparel retailer a good opportunity.
Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
