Abercrombie & Fitch to see earnings 'upside,' but there's potential margin pressure ahead: analyst

By Steve Gelsi

William Blair's Dylan Carden flags stock's 'heroic run' ahead of second-quarter results on Wednesday and reiterates market-perform rating

Abercrombie & Fitch Co. is expected to deliver sales growth ahead of its forecasts when it reports second-quarter results on Wednesday after a strong stock-price performance, William Blair analyst Dylan Carden said in a research note.

But the company's gross margins may come under pressure in coming quarters, he said.

Wall Street analysts expect Abercrombie & Fitch (ANF) to report second-quarter adjusted earnings of $2.22 a share on revenue of $1.1 billion.

Carden reiterated a market-perform rating on the stock. Its share price has gained 97% in 2024 and 222% in the past 12 months.

"It remains hard to poke holes in the stock here, even despite its heroic run," he said. "As expected, the quarter is likely to see a top-line beat above its own guidance range of midteens sales growth ... with gross margin expectations likely overly subdued."

Carden said he remains encouraged by the retailer's moves to add relevance to the Abercrombie & Fitch brand, while its Hollister stores continue to recover.

On the other hand, Carden sees potential risks in the second half of the year for tighter profit marings.

"There is some, potentially significant, margin give-back in the model that remains a blind spot for the Street," he said. "This should also temper medium-term reaction to what we nevertheless expect to be at least two more quarters of more significant upside to numbers."

Analysts have generally been growing more bullish in their expectations for the quarter, according to estimates compiled by FactSet.

Back on Feb. 29, analysts had expected second-quarter earnings of $1.32 a share for Abercrombie & Fitch, according to FactSet data.

Abercrombie & Fitch's stock rose 0.4% on Tuesday.

-Steve Gelsi

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08-27-24 1102ET

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