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Updated: 13-Jan-25 11:47 ET
Abercrombie & Fitch tumbles toward August lows as Q4 guidance signals slowing growth (ANF)

Abercrombie & Fitch (ANF -18%) loses much of its appeal today despite raising its Q4 (Jan) sales outlook following upbeat holiday spending trends. The clothing retailer focused on a younger demographic lifted its Q4 net sales forecast to +7-8% from +5-7%, pushing its FY25 revenue growth guidance to around +15% compared to its previous +14-15% forecast. Additionally, ANF reiterated its operating margin projections for the quarter and full year, anticipating around 16% and 15%, respectively.

  • Why are shares heading lower? ANF's sales trends weakened this year compared to the previous holiday season. In 2023, ANF raised its Q4 net sales growth outlook to a high teens percentage from low double-digits, suggesting around a 5-9 pt bump due to a robust holiday shopping season. A similar development is unfolding for rival American Eagle (AEO), whose total revenue is tracking around 5% lower for Q4 compared to a low double-digit jump during the year-ago period.
  • Despite offering similar product assortment, ANF and AEO are not cut from the same cloth. ANF appreciated by over +60% during 2024, while AEO languished, slipping by around 20%. The key difference was ANF's massive brand overhaul, tossing away the dimly lit teenage aesthetic and focusing on higher-quality tailored clothing for a 20-40-year-old demographic. The move resulted in soaring revenue growth, from periods of low single-digit jumps to multiple quarters of over +20% growth.
  • Following this impressive upward momentum, ANF has raised the bar significantly, opening the door to quick profit-taking on underwhelming or concerning numbers, such as its softening trends during the 2024 holiday season. ANF may have pushed the bar even higher with its remarks during its Q3 (Oct) earnings call in late November, conveying optimism about its upcoming newness in various gift ideas across categories, marketing campaigns, and investments in new and existing locations to support climbing traffic trends.
  • Lingering in the background remains uncertainty across the macroeconomic environment. CEO Fran Horowitz mentioned during the company's Q2 (Apr) earnings call in late August that the global economy remains dynamic, keeping uncertainty elevated. However, ANF's upbeat performance in Q3 temporarily alleviated these fears. With 2024 holiday sales trends not shaping up quite to the market's liking, investors are growing worried that perhaps the economic headwinds felt last year are beginning to creep back up.

ANF still expects to finish FY25 with a 15% improvement to its top line yr/yr. Even though this is a slowdown from the +16% spike posted in FY24, it still underscores relatively healthy demand, especially compared to AEO. Nevertheless, any cracks underneath the surface for ANF will likely spark concern. Going forward, the company's playbook is to expand its international presence while continuing to strengthen its refreshed look at home. If inflationary pressures tick back up, consumer discretionary categories like fashion apparel could face outsized challenges. With ANF putting on a show over the past several quarters, its stock could take a disproportionate hit if growth begins to throttle more aggressively.

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