Why Abercrombie & Fitch Stock Surged Today
Key Points
Abercrombie & Fitch bested Wall Street's earnings forecasts.
The retailer's Hollister brand is resonating with younger shoppers.
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Shares of Abercrombie & Fitch (NYSE: ANF) rocketed 37% higher on Tuesday after the apparel retailer's fiscal third-quarter profits exceeded investors' expectations.
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Hollister's sales are booming
Abercrombie & Fitch's revenue rose 7% year over year to $1.3 billion in the quarter ended Nov. 1. The gains were driven by the exceptional performance of the company's Hollister brand, which saw same-store sales rise by a blistering 15%. That more than offset a 7% decline in the retailer's namesake Abercrombie brand's comparable sales.
Moreover, management expects Abercrombie's performance to improve in the coming quarters. "Abercrombie brands made sequential progress in-line with our expectations, and we are tightly managing inventory as we aim for fourth-quarter brand net sales to be approximately flat to last year's record," CEO Fran Horowitz said in a press release.
Better still, Abercrombie & Fitch did an admirable job navigating a difficult cost environment. Despite a significant negative impact from tariff-related cost increases, the company's operating margin checked in at a respectable 12%, albeit down from 14.8% in the year-ago period.
Abercrombie & Fitch, in turn, generated earnings per share of $2.36. That was well above Wall Street's estimates, which had called for per-share profits of $2.16.
Management is optimistic about the upcoming holiday selling season
Looking ahead to the fourth quarter, Abercrombie & Fitch guided for net sales growth of 4% to 6% and earnings per share of $3.40 to $3.70.
"We remain on track toward record net sales for fiscal 2025, on the foundation of consistent quarterly top-line growth, top-tier profitability, and healthy cash flow," Horowitz said.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Abercrombie & Fitch. The Motley Fool has a disclosure policy.
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