Abercrombie & Fitch Stock Up 4x, Time To Sell?

Abercrombie & Fitch’s stock (NYSE: ANF), a specialty retailer selling casual clothing and footwear with a focus on the young adult and teen demographics, jumped by almost 4x – moving from about $10 to $41 currently – in the last twelve months. The consumer discretionary stocks have been recovering well in the fiscal first quarter 0f 2021 on the back of falling Covid-19 cases and picking up vaccination rates in the U.S. The pandemic accelerated the e-commerce shift for ANF, given that online sales are more cost-efficient for the company. In fact, the retailer’s operating margin is now sitting at 7.3% (in Q1 2021) and is well above the almost 5% level that most traditional retailers generally see. So, does ANF stock still look attractive at current levels? We certainly don’t think so.

Abercrombie & Fitch’s stock is currently at a seven-year high – despite reporting a 14% year-year-year (y-o-y) decline in revenues and posting earnings at a loss of $1.82 per share in 2020. Even before the pandemic, the company’s revenues have continued to show a decelerating trend with revenues growing at 1% y-o-y in 2019, 3% in 2018, and 5% in 2017. While the retailer’s top line grew 61% y-o-y in the first quarter, its sales were only up 6% from the first-quarter 2019 sales. Given that the comparison to 2020 is biased by the impact of the coronavirus pandemic, the 2019 comparison provides a better look at the company’s ongoing growth. Our dashboard, What Factors Drove 135% Change in ANF’s Stock Since Fiscal 2019? provides the key numbers behind our thinking, and we explain more below.

ANF’s stock grew 18% from around $17 at the end of fiscal 2019 to around $20 at the end of fiscal 2020. While the company’s revenue per share declined 7% during this period – thanks to the pandemic restrictions, the company’s stock price climbed at the end of fiscal 2020 on the optimism of vaccine trial news. It should also be noted that ANF’s P/S was around 0.3x in 2019, but it appeared higher at 0.4x in 2020 as the reported drop in RPS led the P/S ratio to appear higher at that point. While the company’s P/S is about 0.8x now, we expect this figure to decline modestly going forward.

How Is Coronavirus Impacting ANF Stock?

ANF’s digital sales grew 45% y-o-y in Q1 2021. In fact, digital sales were 52% of total sales in the quarter. In addition, the first-quarter 2021 adjusted earnings came in at $0.67 per share, up from a loss of $3.30 per share in 2020, and also up from an adjusted loss of $0.29 per share in 2019. Management noted that it was able to keep inventories under control, helping to support strong margins in Q1.

It is helpful to see how peers stack up. ANF Stock Comparison With Peers for how Abercrombie & Fitch compares against peers on metrics that matter.

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