Abercrombie’s 300% surge in 2023 beats even sizzling-hot Nvidia

One retail stock has been a clear winner this year as fashion trends revisited the late 90s and early 2000s. 

Abercrombie & Fitch is up nearly 300 per cent this year through Thursday’s (Dec 28) close, its best annual performance since going public in 1996. The rally has made the company the best performer in the S&P 1500 Index, even managing to beat out artificial intelligence darling Nvidia Corp’s nearly 240 per cent gain. The retailer has also handily outperformed its peers – the S&P Retail Select Industry Index is up about 21 per cent this year. 

The strong showing is a sharp pivot from 2022, when shares fell 34 per cent as the broader stock market was dragged down by an uncertain economic backdrop and cautious consumers. Heading into this year, however, Abercrombie cleared extra inventory and focused on its target audience, young millennial and Gen Z shoppers heading back to work, school and social lives after the pandemic. 

That meant broadening its offerings to include work-wear, special-occasion clothing and active apparel, according to Argus Research analyst Kristina Ruggeri. 

“The strategy has helped the company target its messaging and expand its addressable market beyond jeans and other casual clothing,” she wrote in a Dec 19 note. Ruggeri also raised her price target to a Wall Street high of US$97, saying that she expects Abercrombie to continue its momentum of higher sales and margins through the holiday season, helped by higher pricing, lower freight costs and a return to a stable supply chain. 

In addition, solid quarterly results have lifted Abercrombie shares this year. In its latest earnings release, the retailer not only reported stronger-than-anticipated third-quarter sales but boosted its full-year net sales outlook again.  

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Some investors are taking profits now as the year comes to a close. Shares of Abercrombie are down nearly 3 per cent this week after a four-session streak of losses, its longest since September. 

Wall Street is also largely neutral on Abercrombie shares, with only about a third of the analysts covering the company giving it a buy-equivalent rating, according to data compiled by Bloomberg. The average price target is US$78, implying a 13 per cent decrease from where shares currently trade. 

Still, there’s optimism that Abercrombie can continue to deliver on its strong year – analysts have boosted fourth-quarter adjusted earnings-per-share expectations by more than 30 per cent in the past month, data compiled by Bloomberg show. Citigroup’s Paul Lejuez, who has a neutral rating and US$82 price target on the shares, thinks the company could deliver another earnings beat. 

“Abercrombie’s momentum can continue, though it will be tougher to deliver upside against already high expectations,” he wrote in a note after its November earnings release. BLOOMBERG