Why Abercrombie & Fitch Shares Dropped Even After Good News This Week

Retailers have reported mixed results this earnings season as some consumers pull back on spending while others look for deals. Abercrombie & Fitch (ANF 2.14%) reported record net sales in the second quarter and beat analysts’ sales expectations for the sixth consecutive quarter.

But the stock still crashed. For the week, Abercrombie shares are down 16% as of Friday morning, according to data provided by the S&P Global Market Intelligence. Two things led to the negative reaction from investors. Last but not least is the stunning 178% gain for the clothing retailer’s stock over the past 12 months.

A comeback story for the ages

Abercrombie reported that second-quarter sales were up 21 percent compared to the year-ago period. This sales growth has been the story for the company over the past year or so. And investors rallied as the company’s once-in-a-lifetime turnaround story took hold.

Since becoming CEO in 2017, Fran Horowitz has led an overhaul of the retailer’s brand portfolio, store footprint and ultimately reputation. This continues to pay off, with sales expected to grow by around 12.5% ​​for fiscal 2024. This is a slight slowdown compared to 2023 growth of 16%.

But the company sees an improvement in profitability from fiscal 2023. Management raised its estimate for operating profit margin to 15% in 2024, compared with 11.3% last year. And operating margin in 2023 was the highest in 15 years for the company.

It’s no surprise that investors are taking profits after the stock’s huge run over the past year. After all, while the recovery plan has taken hold, sales growth is expected to slow somewhat this year. But this week’s drop in the stock price has pushed the forward price-to-earnings (P/E) ratio below 14 — about the lowest level since last spring. This gives investors looking for exposure to a growing apparel retailer a good opportunity.