Investing.com -- Barclays initiated coverage of Abercrombie & Fitch with an Equal Weight rating and a $71 price target on Monday.
The bank told investors it balanced the company’s strong recent performance and brand momentum against a backdrop of potential margin pressure and sector-wide uncertainty.
“Our rating balances our view of ANF’s strong brand heat, best-in-class omnichannel model, and future store growth opportunities against risks from elevated inventory levels, potentially peaking margins, higher marketing spending, difficult compares in FY25, and sector-wide tariff uncertainty,” Barclays wrote in a note initiating coverage.
The analysts pointed to robust recent growth, with Abercrombie delivering consolidated comp sales growth of 13 percent and 17 percent in fiscal 2023 and 2024, respectively.
“Management expects FY25 to be another year of revenue growth across brands and regions,” Barclays said, highlighting Abercrombie’s “durable and sizable growth across regions” and a five-year net revenue CAGR of 12 percent versus 2 percent for Hollister.
The analysts also praised the company’s omnichannel capabilities, calling it a “highly-profitable, high-penetration digital business” complemented by “store four-wall margins of ~30%.”
New store experiences and expansion through wholesale, franchise, and licensing were seen as long-term growth drivers.
Still, Barclays flagged several near-term headwinds. “Elevated inventory levels exiting FY24, with higher seasonal carryover, [are] expected to pressure gross margins,” they wrote.
The firm also cited rising freight costs, higher marketing spend, and tough year-over-year comparisons, especially as Abercrombie laps a 29 percent comp in the first quarter of FY24. Early trends in FY1Q25 comps are already “running ‘a bit negative,’” as of March 5.
Barclays also noted ongoing industry-wide concerns: “sector-wide tariff uncertainty” adds a further layer of risk, limiting visibility for fiscal 2025.
As a result, the firm concluded, “uncertain times prevail” and the stock is best viewed with a neutral stance for now.
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