This earnings season has seen a mix of outcomes for retailers, with some consumers tightening their purse strings while others hunt for bargains. Abercrombie & Fitch, for instance, reported a remarkable second-quarter performance, achieving record net sales and surpassing analyst expectations for the sixth consecutive quarter.
Despite this, the company’s stock took a significant hit. By Friday morning, Abercrombie shares had plummeted 16% for the week, according to S&P Global Market Intelligence data. Investors reacted negatively for two main reasons, one of which is the impressive 178% increase in the retailer’s stock over the past year.
A Remarkable Turnaround
In the second quarter, Abercrombie’s sales surged 21% compared to the same period last year. This growth narrative has defined the company’s recent trajectory, attracting investors as the once-struggling retailer successfully executed its turnaround strategy.
Since taking the helm in 2017, CEO Fran Horowitz has spearheaded a transformation of Abercrombie’s brand portfolio, retail locations, and overall image. These efforts continue to yield results, with an anticipated sales increase of approximately 12.5% for fiscal year 2024, following a 16% rise in 2023.
Moreover, the company anticipates enhanced profitability compared to fiscal 2023. Management has adjusted its forecast for the operating profit margin, projecting it could reach as high as 15% in 2024, up from 11.3% the previous year. Notably, the 2023 operating margin was the company’s highest in 15 years.
Given the stock’s substantial gains over the past year, it’s not unexpected for investors to lock in profits. Although the turnaround strategy is firmly in place, a slight deceleration in sales growth is anticipated this year. Nevertheless, this week’s stock price decline has reduced the forward price-to-earnings (P/E) ratio to below 14, the lowest it has been since last spring, presenting a promising opportunity for investors seeking to invest in a growing apparel retailer.
