Abercrombie & Fitch's Q2 Revenue Growth Slows, But Full-Year Outlook Boosted
Abercrombie & Fitch (ANF) reported mixed results for Q2, with revenue growth decelerating but the company boosting its full-year outlook. Meanwhile, its Hollister brand continued to grow at a robust pace. The stock, which has been falling, is now seen as increasingly attractive by analysts.
Abercrombie & Fitch's Q2 revenue grew 7% year-over-year (y/y) to $2.31 billion, with comparable sales (comps) decelerating to 3% y/y. However, the company boosted its full-year outlook, expecting sales growth of 5%-7% and pro forma earnings per share (EPS) of $10.00-$10.50. The Hollister brand, a key driver for the company, grew at a pace of 19% y/y in Q2, although this was a deceleration from the 23% growth seen in Q1.
Europe, the company's second-largest market, saw a -5% y/y decline in comp sales, representing a significant sequential deceleration of 11 points. Despite these challenges, Abercrombie & Fitch is holding up relatively well compared to peers like Lululemon and Gap in the tough retail environment. The company's valuation currently stands at 6.8x FY 2025 P/E or 5.6x FY 2025 P/E on an ex-cash basis.
Analysts maintain a 'Buy' rating on Abercrombie & Fitch, citing its successful rebrand to basics driving positive comp sales growth, the strong performance of the Hollister brand, a large buyback plan, and controlled tariff impact. Despite facing headwinds, the company's low valuation makes it an attractive investment opportunity. The author's strategy to reallocate portfolio out of expensive large-cap tech stocks and into beaten-down small- and mid-cap stocks in other sectors further supports this view.
