Raymond James cuts ANF price target to $90, maintains Outperform

On Tuesday, Raymond James analyst Rick Patel revised the price target for Abercrombie & Fitch (NYSE:ANF) stock to $90 from the previous $110, while still maintaining an Outperform rating. The adjustment reflects a cautious stance due to observed weaknesses within the A&F brand and anticipated impacts from tariffs.

Patel's analysis included various metrics such as store traffic, mobile app data, Google (NASDAQ:GOOGL) Trends, and weekly online promotions. The data suggested that the A&F brand experienced a quarter-over-quarter decline across most checks, with an increase in promotions during the first quarter. In contrast, the Hollister brand, which is also owned by Abercrombie & Fitch, presented better results across most checks, with expectations for continued strong growth throughout the year.

The analyst pointed out that Abercrombie & Fitch is likely to face significant tariff headwinds, estimated at around 200 basis points annually. While the company is expected to employ mitigation strategies similar to other companies in the Softlines sector, such as sharing costs with manufacturers, optimizing sourcing, and selectively raising prices, Patel expressed limited confidence in ANF's ability to increase prices effectively due to its younger consumer base.

As a result of these challenges, the gross margin percentage estimates have been revised downward to account for the impact of tariffs and increased promotional activity. Despite these headwinds, Patel noted that Abercrombie & Fitch's year-to-date stock performance is down 52%, and its price-to-earnings ratio is approximately 6.5 times, which is below the five-year average of 14 times.

The analyst concluded that much of the negative news appears to be already reflected in the stock price. Patel emphasized that, in the long term, there are still levers for growth and margin expansion, which supports the Outperform rating and suggests an attractive risk/reward balance for investors. InvestingPro analysis indicates the stock is currently undervalued, with additional ProTips highlighting strong cash flows and moderate debt levels. For comprehensive insights and detailed financial analysis, investors can access the full Pro Research Report, available exclusively to InvestingPro subscribers.

In other recent news, Abercrombie & Fitch reported strong sales growth and improved profitability for fiscal year 2024, with a 15.6% increase in revenue and a significant expansion of adjusted EBITDA to about $1.2 billion. The company's digital channels now account for nearly 50% of sales, contributing to better operating margins. S&P Global Ratings revised its outlook for Abercrombie & Fitch to positive, citing successful transformation initiatives and strong brand performance. Barclays initiated coverage with an Equalweight rating and a $71 price target, noting robust brand appeal but highlighting concerns over elevated inventory levels and higher freight costs.

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Citi adjusted its price target for the retailer to $98, maintaining a Buy rating, while projecting modest sales growth in 2025. UBS also revised its price target to $150, retaining a Buy rating, and expressed confidence in Abercrombie & Fitch's growth potential, despite recent margin pressures. The company's plans to invest in 100 new stores and expand through franchise and licensing partnerships are expected to support future growth. Despite some challenges, such as increased marketing expenditures and tariff uncertainties, analysts generally see favorable risk/reward scenarios for Abercrombie & Fitch.

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