Abercrombie & Fitch Slows in Europe, But Valuation Remains Attractive
Macy's (NYSE: ANF) has experienced a notable slowdown in Europe, with comparable sales growth decelerating to -5% year-over-year. Despite this, the company's valuation remains attractive at 6.8x FY 2025 P/E, or 5.6x FY 2025 P/E on an ex-cash basis.
The retailer's Q2 revenue grew 7% year-over-year, surpassing Wall Street's expectations. However, comparable sales decelerated to 3% year-over-year due to a decline in the Abercrombie brand and slower growth in Hollister. The company's CEO attributed the slowdown to softness in Europe but noted strong performance in the Americas and APAC. Despite these challenges, Abercrombie & Fitch has boosted its full-year outlook, increasing pro forma EPS expectations and sales growth.
Analysts remain bullish on the stock, citing several reasons. Rebranding to basics is driving positive comparable sales growth, and there is an opportunity for growth in the Hollister brand. The company also has a large buyback plan and has controlled the impact of tariffs. Additionally, the company has a low multiple of earnings and zero debt, making it an attractive investment despite its challenges in Europe.
While Abercrombie & Fitch faces a tough retail environment and a significant slowdown in Europe, its valuation remains attractive, and analysts maintain a 'Buy' rating. The company's rebranding efforts, growth opportunities, and strong financial position make it an appealing investment, particularly as the analyst looks to reallocate portfolio out of expensive, large-cap tech stocks.
