Abercrombie (ANF) Stock To Remain A Lucrative Pick In 2019

Abercrombie & Fitch Company (NYSE:ANF) is one retail stock that has displayed strength in fiscal 2018, thanks to its impressive growth strategies that include planned capital investments and cost-saving efforts as well as loyalty and marketing programs. Further, robust Hollister and direct-to-consumer (DTC) business performances are the key catalysts in Abercrombie’s growth story. These efforts have not only supported the company’s robust surprise trend but also helped maintain stock momentum all through the past year.

Clearly, the Abercrombie stock has surged 8.1% in the past year, comfortably outperforming the industry’s decline of 18.3%.

Let’s get a closer look at the factors that position Abercrombie for more growth in the year ahead.

Abercrombie’s smooth progress on expanding digital presence, along with growth of direct-to-consumer and omni-channel capabilities, is commendable. The company’s investment in mobile, omni-channel and fulfillment significantly aided growth of its direct-to-consumer business. Notably, digital engagement with consumers has been its core strength.

The DTC business continued to perform well in the fiscal third quarter, backed by robust digital momentum across both brands and geographies. DTC sales surged 16% and accounted for nearly 28% of total sales compared with 24% recorded in the last year. In fiscal 2018, the company plans to continue investing in DTC capabilities, alongside bringing innovations in this channel, using customer insights and data analytics.

Additionally, the expansion of Hollister stores in newer markets presents long-term growth opportunity for Abercrombie, given the brand’s ongoing strength. With this expansion, the company garners the advantages of small-sized operations, which are cheaper and require little capital investments.

Notably, the Hollister brand reflects persistent positive momentum, driven by strong sales growth across all channels and geographies in third-quarter fiscal 2018. Comps for the brand improved 4% in the fiscal third quarter, marking the brand’s eighth straight quarterly growth. Impressively, Hollister is gaining from the positive customer response to product innovations, emerging categories and overall customer experience.

Apart from these, the company is continually rethinking its loyalty program, providing lucrative offers and promotions to attract customers. This, along with its investment in stores, omni-channel and DTC business, goes a long way in enhancing customer experience.

Backed by the aforementioned actions, Abercrombie delivered positive earnings surprises in the trailing six quarters while sales topped estimates in six out of the last seven quarters. Moreover, the company witnessed strong start to the holiday season — during the period from Thanksgiving to Cyber Monday. This raises optimism for finishing fiscal 2018 on a strong note.

In November, the company witnessed strong double-digit growth on the singles day on T-Mall and record sales during the aforementioned holiday period. Consequently, it expects to deliver on its previously stated outlook for fiscal 2018. The company anticipates strong top-line growth, gross margin expansion and operating expense leverage in fiscal 2018. It also outlined its view for the fiscal fourth quarter.

Conclusion

We believe that the aforementioned strategies and actions position Abercrombie for further growth in fiscal 2019. Moreover, this Zacks Rank #1 (Strong Buy) company's VGM Score of B, with an expected long-term earnings growth rate of 12.5%, demonstrates its growth potential.

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