Analyst Takes Down Abercrombie & Fitch Price Forecast By 34% Despite Being Bullish - Here's Why

Core Viewpoint - Telsey Advisory analyst Dana Telsey maintains an Outperform rating on Abercrombie & Fitch Co (ANF) shares but reduces the price target from $190.00 to$125.00 due to increased macroeconomic uncertainty [1] Group 1: Financial Performance - ANF concluded FY24 with strong results, exceeding both revenue and earnings expectations, despite a slight decline in gross margin during the fourth quarter [1] - The company reported a 22.5% year-over-year increase in inventories, contrasting with a 9.1% growth in topline revenue for the same period [5] - The projected EPS for FY25 is $11.35, a slight increase from the previous estimate of$11.30 [6] Group 2: Growth and Expansion - ANF has demonstrated consistent growth across its A&F and Hollister brands, supported by a strong holiday performance and an upcoming share repurchase program [2] - The company plans to open 100 new locations in FY25, marking its fourth consecutive year of net store openings [4] - Management anticipates FY25 net sales growth of 3% – 5%, driven by regional and brand expansion [3] Group 3: Operational Insights - ANF's operating margin is expected to range between 14% – 15%, with the first half affected by higher freight costs and inventory selling, while the second half is expected to benefit from lower freight costs [3] - The company has a flexible supply chain that sources products from 17 countries, allowing it to quickly adapt to demand changes [4] - In FY24, ANF achieved a fleet four-wall operating margin of approximately 30% [5] Group 4: Market Conditions - The outlook for ANF considers the impact of newly announced tariffs on China, Canada, and Mexico, which are projected to reduce operating margin by about $5 million for the year [3] - Despite concerns regarding margin and consumer confidence, the company's low valuation supports a positive outlook [2]