The weakness in Abercrombie & Fitch Co. (NYSE: ANF) also presents an attractive buy opportunity. Shares of the clothing retailer have pulled back 33% from their November 2021 peak mainly due to the impact of supply chain disruptions on inventory levels. This combined with rising Omicron cases at the beginning of the year made for a disappointing holiday quarter and a weak first quarter.
Things should get better from here. As supply chain snags lessen, Abercrombie & Fitch will have more apparel to sell to youthful shoppers that swear by the Hollister and namesake brands. And as the Fed’s attack on inflation bears fruit, reduced freight expenses should help turn sales into better profits.
Abercrombie & Fitch’s biggest growth catalyst, however, could be its rapid shift towards digital. Long a mall-based retailer, the company’s revenue is split evenly between brick & mortar and e-commerce these days. As management continues to shift resources in this direction, A&F should evolve into a relevant clothier for the younger generations of online shoppers. An increasing cadre of 34 million social media followers is surely a solid base from which to grow.
The stock trades at less than 10x the current year’s earnings estimate, which makes it one of the best deals in retail. Even a (very plausible) return to the $40 level would equate to a 20% gain.