Citi on Thursday moved Abercrombie & Fitch (NYSE: ANF) from a Buy to a Neutral rating, citing the retailer's sharp stock rebound after earnings as the central reason for the change. The bank underscored that the reassessment does not reflect a deterioration in the company's underlying results.
"2Q was an all-around impressive quarter, and 3Q/2H guidance is very encouraging. However, with the stock +36% yesterday and only 6% upside to our new TP of $156, we view the risk/reward as balanced," analyst Paul Lejuez wrote.
Citi highlighted that second-quarter results beat expectations on both sales and gross margin, and called management's recent third-quarter-to-date commentary particularly encouraging. The bank pointed to accelerating sales at Hollister versus the second quarter and continued momentum at the Abercrombie brand as notable positives. Citi also flagged an earlier-than-expected re-acceleration in EMEA as a favorable development.
On guidance assumptions, Citi noted upside potential to its second-half average unit retail outlook. The firm's current guidance assumes only modest unit growth after a mid-single-digit increase in the second quarter - growth that Citi attributes to a pullback in promotions across regions and brands.
Management described Hollister's second quarter as a "tale of two halves," with early-period choppiness driven by low inventory that eased as stock levels improved and demand materialized. Citi emphasized that the recent third-quarter acceleration is not being driven by new store openings or wholesale channels.
Reflecting the stronger near-term trajectory, Citi raised its fiscal 2026 and 2027 earnings estimates to $13.64 and $13.80, respectively, up from prior forecasts of $11.10 and $12.65. The bank also increased its price target to $156 from $135 and models 5.2% sales growth for the year with a 14.9% EBIT margin.
What this means
- Analyst recognition of stronger operating performance prompted earnings and target upgrades.
- A sharp, short-term rally in the stock has reduced the potential upside to Citi's revised target.
- Operational improvements - including inventory replenishment and margin recovery - are central to management and Citi's constructive near-term view.