The retailer delivered another quarterly surprise and lifted its full-year outlook.
Abercrombie & Fitch (ANF) posted better-than-expected third-quarter results, easing concerns after a difficult year for the stock. The retailer delivered record revenue and stronger earnings, driven by momentum at its Hollister brand.
Key Points
- Revenue rose 6.8% to $1.29 billion, slightly above expectations
- GAAP earnings of $2.36 per share beat estimates by 9.4%
- Full-year earnings guidance increased, signaling improving confidence
Revenue Growth Shows Momentum Returning
Abercrombie & Fitch reported $1.29 billion in Q3 sales, edging past market forecasts and marking another period of growth. The company expects around $1.66 billion in revenue next quarter, roughly matching analyst projections. Same-store sales increased 3%, which is slower than last year’s 16% jump but still points to steady customer demand.
Over the past three years, the retailer has grown revenue at an annualized rate of 12.3%. With $5.18 billion in sales over the last 12 months, the company remains mid-sized, which allows it to expand faster than larger competitors working off a higher base.
What’s Driving the Turnaround at Hollister?
Hollister continues to lead the business with a 16% quarterly sales increase, boosted by a strong back-to-school season and improved seasonal transitions. In contrast, Abercrombie-branded stores saw weaker trends but showed sequential improvement. Management is keeping inventory tight heading into the holiday period and expects flat sales for the Abercrombie banner compared to last year’s record performance.
Operating margin came in at 12%, down from 14.8% a year ago, reflecting tariff pressure and investment in marketing and technology. However, free cash flow improved to a 10.2% margin, up from 7.6%, indicating stronger profitability and better cash management.
Is the Stock Rebound a Turning Point?
Shares surged more than 30% following the earnings release, marking one of the largest single-day gains in over a decade. The move comes after the stock fell 56% earlier in the year due to weaker discretionary spending and tariff concerns. Analysts noted that results were better than feared, especially as the company maintained an in-line holiday outlook rather than cutting expectations again.
Full-year GAAP earnings are now projected to reach roughly $10.35 per share at the midpoint, topping estimates by nearly 3%.
What It Means for Investors
The latest results suggest the company is stabilizing after a volatile stretch. While growth is slowing from unusually strong levels, the business is still outperforming much of the retail sector. Hollister remains the primary driver, and even modest improvement in the Abercrombie brand could lift overall performance.
Management’s confidence is backed by continued share repurchases, returning $100 million to shareholders in the quarter and $350 million year-to-date. For investors looking to analyze stocks in the retail space, the combination of improving guidance, disciplined execution, and stronger cash flow makes the company more compelling than earlier in the year.
However, risks remain. Operating margins are still under pressure from tariffs, and same-store sales have cooled from exceptional highs. The key question for those evaluating companies that are good to invest in is whether holiday demand holds steady and the Abercrombie brand can avoid renewed declines.
Conclusion
Abercrombie & Fitch delivered a stronger-than-expected third quarter, offering a reset for sentiment after a challenging year. With improving profitability, solid inventory control, and a steady outlook, the company enters the holiday season with regained momentum.
FAQs
What drove the company’s earnings beat this quarter?
Higher profitability and a 3% increase in same-store sales pushed earnings above expectations.
How did Hollister perform compared to the Abercrombie brand?
Hollister grew 16% year over year, while the Abercrombie banner declined but showed sequential improvement.
What is the company expecting for the fourth quarter?
Management projects revenue of roughly $1.66 billion, in line with analyst estimates.
Why did the stock jump so sharply after the report?
Results eased concerns following earlier guidance cuts, and the company raised full-year earnings expectations.
Is revenue growth expected to continue next year?
Analysts see revenue increasing about 4.1% over the next 12 months, slower than recent years but still above industry averages.
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