Abercrombie & Fitch Stock Has Gained 20% But Has More Room For Growth After Coronavirus

Based on a comparison of Abercrombie & Fitch’s (NYSE: ANF) stock trajectory over recent months with that around the 2008 recession, we believe that the stock can potentially gain 20%, to reach almost $12, once fears surrounding the coronavirus outbreak are put to rest. A detailed comparison of Abercrombie’s performance vis-à-vis the S&P 500 is available in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Abercrombie & Fitch Stock Fare Compare With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. Abercrombie stock lost 51% of its value (vs. about a 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 21% over recent weeks (vs. about 27% gain in the S&P 500) to its current level around $10. Despite the recovery, the stock is still down 40% since the beginning of the year.

Abercrombie’s Stock Fell Because The Situation On The Ground Has Changed

The decline in Abercrombie’s stock is understandable, considering the impact that the outbreak and a broader economic slowdown is having on total consumption/consumer spending, and the global apparel industry. Notably, the company derives a bulk of its revenues from the US which has become the new epicenter of the outbreak- recording the largest number of COVID-19 cases across the globe. Moreover, people are just not going to shop for luxury or even basic apparel products. Abercrombie has temporarily shuttered stores outside the Asia-Pacific region which is further impacting the company’s performance. Abercrombie also withdrew its earnings guidance provided after the release of its Q4 results (ending January), citing uncertainty relating to the potential impacts of COVID-19 on the company’s business operations. In a bid to save costs, Abercrombie has furloughed a majority of store associates (in North America and EMEA) effective April 12, 2020, and has suspended share buybacks for the foreseeable future.  The outbreak of the virus has led to a steep fall in demand and we believe Abercrombie’s Q1 2020 results will confirm this reality with a drop in revenues across segments. If signs of coronavirus containment aren’t clear by the Q2 earnings timeframe, it’s likely Abercrombie’s stock, along with the broader market, is going to see a continued drop when results confirm the palpable reality.

But Abercrombie Stock Witnessed Something Similar During The 2008 Downturn

• We see Abercrombie stock declined from levels of around $57 in October 2007 (the pre-crisis peak) to levels of around $16 in March 2009 (as the markets bottomed out)- implying the company’s stock lost as much as 73% from its approximate pre-crisis peak. This marked a steeper drop than the broader S&P, which fell by about 51%.
• However, Abercrombie recovered strongly post the 2008 crisis to about $25 in early 2010 – rising by 61% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will Abercrombie’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that Abercrombie stock fell 51% from the market peak on February 19 to the low on March 23 compared to the 73% decline during the 2008 recession, we believe it can potentially recover by 20% to levels near $12 once economic conditions begin to show signs of improving. This marks a partial recovery to the $17 level Abercrombie stock was at before the coronavirus outbreak gained global momentum.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture and complements our analyses of Coronavirus impact on a diverse set of Abercrombie’s multinational peers – from Coronavirus and GES to impact on competitor L Brands and Coronavirus on URBN stock. The complete set of coronavirus impact and timing analyses is available here.

While things are bad for companies across the apparel industry, the ongoing crisis has raised questions about the very survival of some companies due to their precarious financial position. We find out whether Gap Can Survive The COVID-19 Recession in a separate analysis.

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