Abercrombie & Fitch Company

ANF Details

Abercrombie & Fitch Company (NYSE: ANF) is a leading, global omnichannel speciality retailer of apparel and accessories. The company caters to men, women, and kids through five renowned brands. ANF holds around 735 stores spread across North America, Europe, Asia, and the Middle East.

Decent Performance in Q3FY21 (For the Quarter Ended 30 October 2021)

• The company has recorded a 10% YoY increase in its total net sales or 5% from 2019 levels to $905 million, where the digital net sales grew 8% YoY to $413 million to represent 46% of overall sales in Q3FY21.
• Gross profit rate declined by 30 basis points to 63.7% compared to the pcp owing to the impact of 300 basis points of higher average unit cost from freight inflation and efforts to equipoise supply chain issues, offset by higher average unit retail on lower promotions.
• However, coupled with better cost management, the company achieved an 8% operating margin, marking its best third-quarter operating margin and income since 2012.
• The net income per diluted share increased to $0.77 and $0.86 on a reported and adjusted non-GAAP basis, respectively.

Source: Company Reports, Analysis by Kalkine Group

Recent Update

• In the press release dated 4 November 2021, the company informed that it had been named one of the 2021 Best Workplaces in Retail™ by Fortune magazine and Great Place to Work.
• On 28 October 2021, the company introduced a same-day delivery service across its entire U.S. store fleet. To cater to this requirement, the company has joined hands with Uber, Shipt, Postmates, Roadie and software provider Delivery Solutions to deliver products from its stores to the end customers within the same day.

Outlook

The company remains focused on accelerating digital, data, and technology investments to boost agility and enhance customer experience. The retailer also emphasises augmenting its marketing investments to drive further momentum across brands and geographies. Moreover, it optimises store networks while remaining opportunistic in global store expansion. Notably, the company is witnessing a promising start to the holiday season. Meanwhile, the company is actively managing the continuing supply chain constraints. It remains confident that the product, marketing voice, and omnichannel experience fulfil the new and existing customers’ requirements throughout the fourth quarter.

Key Risks

The company is exposed to the adverse impact of COVID-19 that disrupts its business. Its business would be affected by the changes in global economic and financial conditions and the effect on consumer confidence and spending. Fluctuations in foreign currency exchange rates could adversely impact its business. Further, it is susceptible to disruptions or adverse conditions affecting its supply chain.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Technical Overview

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The company has delivered a 6-month and one-year return of ~-23.89% and ~+74.09%, respectively. The stock is trading higher than the average price of the 52-week low-high range for the stock at $19.64 - $48.97.

The stock has been valued using a P/E multiple based relative valuation (on an illustrative basis), and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average P/E multiple (NTM) (Peer Average), considering a solid focus towards optimising the global store network and enhancing digital and omnichannel capabilities.

Considering the factors above, we give a “Buy” recommendation on the stock at the current market price of $34.68 per share as of 29^th December 2021 (Time: 9:49 AM, NY, USA).

Abercrombie & Fitch Company (ANF) is a part of Kalkine’s Global Big Money Product

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.