Abercrombie & Fitch (ANF -16%) reported impressive Q2 (Jul) results, beating both top and bottom-line expectations. The company saw robust same-store sales growth and raised its FY25 revenue growth outlook. Abercrombie, Hollister, and all geographic regions achieved double-digit comp growth.
Why are shares selling off then? ANF warned of a challenging macroeconomic environment, which will coincide with unfavorable year-over-year comparisons in Q3 (Oct) and Q4 (Jan). Despite raising its FY25 revenue growth outlook by 2-3 points, the company anticipates a significant slowdown compared to the first half of the year. This reflects difficult comparisons and economic uncertainty. Additionally, ANF's projected Q3 operating margins fell below street estimates due to higher-than-expected freight costs. Following a +35% run in the stock since August 5 lows, investors are locking in profits today.
- ANF's Q2 performance highlights:
- EPS surged by 127% year-over-year to $2.50.
- Revenue grew by 21.2% to $1.13 billion.
- Same-store sales increased by +18%.
- Operating margins expanded by 590 basis points to 15.5%.
- Brand performance:
- Abercrombie comps rose by +21%.
- Hollister posted +15% comps, up from +13% last quarter.
- The Wedding Shop continued to boost overall comps.
- Strong back-to-school season benefited Hollister, trickling into Q3.
- Geographic performance:
- Americas: +18% comp growth.
- EMEA: +17% comp growth.
- APAC: +21% comp growth.
- Future outlook:
- ANF projects low double-digit revenue growth year-over-year in Q3.
- FY25 revenue growth forecast increased to +12-13%, up from +10%.
- Management is optimistic about the holiday shopping season and improving profitability.
ANF's Q2 report was strong, benefiting from appealing brands domestically and internationally. The company has successfully transformed from a basic T-shirt and jeans retailer to one offering a diverse assortment, expanding its age demographic. However, a conservative outlook, with FY25 growth guidance implying around a +7% sales lift in Q4, well below the over +20% jumps in Q1 and Q2, amid an increasingly challenging economic environment, is causing investor concern, leading to today's significant pullback.
