A&F-Why Abercrombie & Fitch's Stock Price Is Lagging Despite A Strong Q3?

Company Performance - Abercrombie & Fitch (ANF) stock fell around 5% on November 26, 2024, compared to a 0.6% increase in the S&P 500 index [1] - ANF's peer American Eagle Outfitters (AEO) saw its stock down 4% to around $18 on the same day [1] - ANF reported strong third-quarter results with a 16% growth in comparable sales, 37% growth in earnings per share, and raised full-year guidance [1] - ANF's sales growth was widespread and diversified, with gains in all key markets, brands, and customer groups [1] - ANF's operating margin declined sequentially from 15.5% in Q2 to 14.8% in Q3 [2] - ANF's current stock price of$ 147 is about 8% below Trefis' valuation estimate of $158 [3] - ANF's revenues are forecasted to be$ 4.9 billion for fiscal year 2024, up 15% year-over-year [3] - ANF's stock returns were 71% in 2021, -34% in 2022, and 285% in 2023, showing high volatility [4] - ANF grew sales by 14% year-over-year to $1.2 billion in Q3, driven by a 16% growth in comparable sales [5] - Hollister saw 14% revenue gains, while the Abercrombie brand saw 15% year-over-year growth in Q3 [5] - ANF's gross profit rate expanded by 20 basis points to 65.1%, leading to an operating margin growth of 170 basis points year-over-year to 14.8% [5] - ANF's EPS came in at$ 2.50 compared to $1.83 a year ago [5] - Hollister delivered a sixth consecutive quarter of sales growth, but the Abercrombie brand has closed the gap as the biggest revenue generator for the first time in FY'23 [6] - ANF raised its full-year guidance, expecting sales growth of 14%-15% from initial guidance of 12%-13%, and an operating margin in the range of 15% [6] - ANF anticipates a strong holiday shopping season with sales growth of 5% to 7% in Q4 [6] Industry and Market Context - ANF continues to outperform in a challenging economic environment, fueled by strong customer demand and effective promotion management [1] - The company faces complexities in the ever-changing shipping landscape and potential tariff-related headwinds [2] - The Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the last 3-year period, showing less volatility compared to ANF [4] - The current macroeconomic environment is uncertain, with factors such as rate cuts and multiple wars potentially impacting ANF's performance [5] Brand Performance - The Abercrombie brand has shown strong performance, particularly in its student demographic and women's business, contributing to its 15% year-over-year growth in Q3 [5] - The company expects the Abercrombie brand sales to outperform Hollister sales going forward [6]