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Abercrombie & Fitch (NYSE: ANF), a specialty retailer, is set to report its fiscal first-quarter results on May 29. ANF stock has surged 72% this year, outperforming the broader market. Despite low expectations for FY’23, the company exceeded forecasts with earnings of $6.22 per share, up significantly from the previous year. ANF’s operating margin also improved from 2.4% in FY’22 to 11.5% in FY’23, driven by strong performances in its namesake unit and Hollister brand. However, with a P/E ratio of 24.1x and guided sales increase of only 4-6%, ANF stock is looking fully priced, especially amid higher interest rates and industry risks.

ANF stock has seen significant gains over the past few years, but the performance has been volatile, with returns of 71% in 2021, -34% in 2022, and 285% in 2023. In comparison, the S&P 500 had returns of 27% in 2021, -19% in 2022, and 24% in 2023, indicating ANF’s underperformance in 2022. Beating the S&P 500 consistently has been challenging for individual stocks, even for heavyweights in the Consumer Discretionary sector. However, the Trefis High Quality Portfolio has outperformed the benchmark each year over the same period, providing better returns with less risk.

Trefis estimates ANF’s Q1 2024 revenues to be around $957 million, slightly below consensus estimates. The holiday quarter saw strong sales growth driven by the Abercrombie brand, with comparable sales up 16% company-wide. The Abercrombie brand reported a 35% revenue increase, while Hollister saw a 9% gain in Q4. ANF’s Q1 2024 earnings per share are projected to be $1.69, slightly missing consensus estimates. Despite the strong performance, the company’s stock price estimate is lower than the current market price, with a valuation of $127 per share, 16% below the current market value.

Looking ahead, ANF faces challenges in maintaining its growth momentum, especially with a more conservative sales increase forecast for this year. Despite the strong results in FY’23, the stock’s valuation may not be sustainable, particularly in light of industry risks and higher interest rates. Investors will be closely watching the company’s Q1 earnings report to gauge its performance and outlook for the future. ANF’s peers and industry comparisons will also provide valuable insights into its positioning within the market. Overall, ANF’s performance in Q1 and its guidance for the rest of the year will be crucial factors in determining the stock’s trajectory in the near term.

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