Abercrombie Soars 7% On Improved 4Q Sales Outlook

Abercrombie & Fitch updated its 4Q sales and margin outlook, sending the shares of the casual clothing and footwear retailer up 7% on Monday.

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Abercrombie (ANF) reported that it now expects 4Q sales to decline by 5%-7%, compared to its earlier expectations of a 5%-10% decline. The updated guidance reflects continued momentum in digital sales which partially offsets the negative impact of store closures and capacity restrictions across the EMEA and North America.

Furthermore, Abercrombie now sees its 4Q gross profit margin expanding by at least 130 basis points versus the same period last year. In a previous forecast, the company expected its gross margin to remain flat or to increase slightly from the year-ago quarter. (See ANF stock analysis on TipRanks)

Abercrombie forecasted operating expenses to drop by at least 2% year-over-year, compared to a previous guidance of a 1%-2% increase. Lower operating expense expectations were due to fewer store openings and rent reductions.

Last month, Morgan Stanley analyst Kimberly Greenberger raised the stock’s price target to $14 (39.2% downside potential) from $10 following the company’s 3Q results. Greenberger noted that Abercrombie’s 3Q results benefited from the casual apparel trend and she believes the momentum will continue to add to the company’s top-line performance over the next two quarters. However, the analyst stuck to a Sell rating on the stock citing concerns over durability and stretched valuation.

Currently, the stock has an analyst consensus of a Hold based on 4 Holds, 2 Buys, and 2 Sells. The average price target of $22.63 implies downside potential of about 1.8% to current levels. Shares have gained by about 33.3% over the past year.