We recently published a list of the 12 Best Apparel Stocks to Invest In. In this article, we are going to take a look at where Abercrombie & Fitch Co. (NYSE:ANF) stands against the other best apparel stocks to invest in.
Consumer Spending and Weather: What’s the Connection?
On February 25, Matt Boss, JPMorgan retail analyst, appeared on CNBC’s ‘Closing Bell’ to discuss the retail trade. He said the market has seen the worst start to spring in around 30 years. From a weather perspective, there have been significant store closures as every part of the country, excluding the southwest, has been clobbered by unseasonable weather.
On top of it, the country has seen 30% more snow, which has pressured seasonal sales. The unseasonable climate has thus created an unfavorable environment. States in the southwest, including California, which have had normal weather, have undergone a 0% change in consumer spending. In fact, consumer spending in states like California, Nevada, and Arizona was up 5%, exactly the same as the rate in November and December.
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The Condition of the American Market and Consumer
Further talking about the conditions of the market and consumers, Boss was of the opinion that a selective recession is materializing. The real force driving consumer spending is the 50% of the economy driven by higher-income consumers. He said that $60 trillion in wealth creation since 2019 is the number to be noticed here. At the low end, the consumer continues to be pressured. However, in retail, this trend means that those offering value continue to win, which is usually the case for retailers catering to value and convenience simultaneously. He said that retailers offering products that are better than a year ago and not compromising on value at the same time make up the equation on the basis of which the market is seeing real winners and losers. He also believed that consumer resilience presents a buying opportunity in the retail sector weakness.
On March 3, Chris Horvers, JPMorgan head of broadlines/hardlines retail, joined CNBC’s ‘The Exchange’ to discuss the retail trade and the weakening consumer. He said that over the past three years, the market has consumers seeking the cheapest prices, particularly in the food market, which is proving to be a tailwind for discount retailers. Thus, he thinks it would be difficult to pass along tariffs, especially in the discretionary categories. The retailers would have to eat a little bit, and so would the manufacturers. However, there is also likely to be an elasticity impact.
We discussed the potential impact of Trump’s tariffs on retail stocks in a recently published article on 12 Cheap Retail Stocks to Buy According to Hedge Funds. Here is an excerpt from the article:
“The Trump administration proposed 25% tariffs on goods imported from Canada and Mexico and 10% tariffs on Chinese-imported goods. Analysts believe these tariffs will affect retail stocks and the goods manufactured in the tariffed countries, at least theoretically. While tariffs on Mexico and Canada have been delayed, they have kicked in for China, according to Yahoo! Finance. This has led to several retailers moving sourcing out of China to contain costs.
Simeon Siegel, retail analyst at BMO Capital Markets, appeared in an episode of Yahoo! Finance’s Opening Bid podcast. Talking about the potential effect of Trump’s tariffs on retail stocks, he was of the opinion that we are focusing on tariffs more than is required. Taking a purely business perspective, he reasoned that a tariff is nothing more than a cost input going up, quite like how the cost of cotton, shipping, or labor can rise.
When such cases materialize, companies take steps to deal with the rising costs, but they don’t become all-encompassed by them. Siegel posited that the uncertainty surrounding this scenario is dramatically more concerning than the actual severity. Approaching the situation as an analyst, he said that he is focusing on companies with the pricing power and capability to deal with rising costs, regardless of why the costs are increasing. Healthy brands with healthy businesses are thus the way to approach this conversation.”
Our Methodology
We sifted through stock screeners, online rankings, and ETFs to compile a list of 20 apparel stocks. We then selected the top 12 most popular stocks among elite hedge funds as of Q4 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A close-up of a customer trying on a piece of apparel in the retailer’s spacious dressing room, emphasizing the company’s focus on personal care and experience.
Abercrombie & Fitch Co. (NYSE:ANF)
Number of Hedge Fund Holders: 51
Abercrombie & Fitch Co. (NYSE:ANF) is a global omnichannel retailer that offers an assortment of apparel, personal care products, and accessories for women, men, and kids. Its brand portfolio includes Abercrombie brands, which includes Abercrombie & Fitch and abercrombie kids, and Hollister brands, including Hollister and Gilly Hicks.
The company delivered net sales growth of 9% in fiscal Q4 2024, with comparable sales growth of 14%. Its full-year net sales reached $4.95 billion, up 16% compared to 2023. This growth was attributed to comparable sales growth of 17%, with double-digit comparable sales growth across regions and brands.
Abercrombie & Fitch Co. (NYSE:ANF) has a strong brand portfolio that is increasingly resonating with consumers. The Abercrombie brands delivered a 16% full-year 2024 net sales growth on comparable sales of 15%, while the Hollister brands grew net sales by 15% on comparable sales of 19%. The company’s full-year 2025 outlook expects a net sales growth of 3% to 5% and an operating margin of 14% to 15%. Abercrombie & Fitch Co. (NYSE:ANF) also announced a new $1.3 billion share repurchase authorization and expects $400 million in share repurchases for 2025.
Carillon Eagle Small Cap Growth Fund stated the following regarding Abercrombie & Fitch Co. (NYSE:ANF) in its Q3 2024 investor letter:
“Abercrombie & Fitch Co. (NYSE:ANF) is a global multi-brand omnichannel specialty retailer of apparel, personal care products, and accessories for men, women, and kids. The stock lagged during the period despite reporting strong quarterly results and lifting forward guidance. We believe the performance is more a result of elevated investor expectations than any weakening of the underlying fundamentals, which we believe continue to remain strong.”
Overall, ANF ranks 6th on our list of the best apparel stocks to invest in. While we acknowledge the potential of ANF as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ANF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.