Here’s how Abercrombie’s “Chase” strategy continues to print money

Specialized retailer Abercrombie & Fitch Co. New York Stock Exchange: ANF the stock is up 285% in 2023 and continues to hit new all-time highs with a 17.6% increase in 2024. The turnaround in its businesses and actions has been nothing short of miraculous and celebrated by shareholders. While most Consumer Discretionary sector retailers have recovered in the post-pandemic era, reaching highs in 2021, their shares tumbled in 2022 as normalization set in from challenging on-base compoundings. annual.

Increasing inventories squeezes margins.

Inventories rose as high inflation forced consumers to tighten their wallets, especially on clothing. Retailers like it Under Armor Inc. NYSE: UAA, American Eagle outfitters NYSE:AEO, Ralph Lauren Co. NYSE:RLand retailers like it too Kohl’s Co. New York Stock Exchange: KSS experienced a contraction in margins. This has led to reduced margins as retailers have had to beef up promotions to reduce inventories amid declining demand in an uncertain economic climate.

Most retailer stocks have not recovered anywhere near their 2021 highs. However, Abercrombie surpassed its 2021 post-pandemic high of $48.97 in August 2023 and has not recovered since looked back more than doubling it.

The “Chasing Strategy” keeps inventory levels low.

One of the keys to Abercrombie’s success has been its “hunting” strategy that strengthens its ability to better manage inventory. Chase Strategy is a real-time data-driven approach to inventory management that uses Internet of Things (IoT) data to perform data analytics using artificial intelligence (AI) to derive business insights into trends.

It prioritizes responsiveness, allowing for real-time adjustments as needed. They “chase” what sells or chase what is in demand to lean into trends using real-time data to adjust production and inventory allocations based on demand.

This is the opposite of the conventional “level” strategy that attempts to forecast demand based on pre-season forecasts based on historical data, holding production levels fixed regardless of demand.

The chasing strategy should not be confused with “fast fashion” which also uses real-time data. The Chase strategy does not use the elements of forecasting and forecasting or economic quality and cheapest prices.

Leverage data

Production cycles are shorter, which allows Abercrombie to react to emerging trends by avoiding overproduction and overstocking of unpopular items. Real-time sales and customer data analytics help identify which products are attractive to target audiences and spot microtrends. This information allows them to make informed choices about what to pursue and what to abandon. A hunting strategy may seem impulsive from the outside, but it requires flawless execution supported by technology, including IoT and artificial intelligence, to enable agile, data-driven decision making.

The proof is in the pudding.

Abercrombie reported third-quarter 2023 earnings per share of $1.83, crushing analysts’ estimates by 65 cents. Revenue rose 20% year-over-year to $1.06 billion, beating analysts’ estimates of $981 million. Comps increased 16% year over year, made up of 26% for Abercrombie and 7% for Hollister. Abercrombie reported it inventory levels are down 20% year over year! This has positioned them well ahead of the holiday season, allowing them to benefit from higher prices, which means higher margins and higher profits.

Firing on all pistons!

On January 8, 2024, Abercrombie revised upward its forecast for the fourth quarter of 2023 based on higher-than-expected holiday sales. They increased fourth-quarter net sales to high levels, compared to the previous forecast of low double-digits. They increased operating margins to 15%, up from their previous forecast of 12% to 14%. They increased full-year 2023 net sales growth to 14% to 15%, up from 12% to 14% of their previous forecast. They increased their full-year 2023 operating margin to 11%, up from their previous guidance of 10%. They will report fourth quarter 2023 earnings in March 2024. Get AI-powered insights on MarketBeat.

Telsey Advisory Group raises price target to $105.

On January 9, 2024, Telsey Advisory Group reiterated its Outperform rating on ANF shares and raised its price target to $105 from $95, citing a better-than-expected holiday season. They noted that this was the fourth time the ANF has raised its annual outlook in as many quarters. Analysts expect continued margin expansion through digital growth and square footage productivity. The $105 price target implies a multiple of 16.2X on the two-year EPS estimate of $6.48, compared to a one-year average multiple of 15.3X and a NTM historical average multiple of 17, 6X.

Analyst ratings and price targets for Abercrombie & Fitch I’m on MarketBeat. You can find similar Abercrombie & Fitch products and competitor stocks at MarketBeat Stock Screener. The ANF has a short ratio of 13.4%.

Bull flag daily breakout pattern

The daily candlestick chart on ANF illustrates the daily bull flag breakout pattern. The flagpole formed during its rally from $65.60 in the third quarter 2023 earnings report on November 21, 2023. The stock rose to peak at $94.08 on December 26, 2023. The pullback composed of lower highs and lower lows formed the bullish flag as ANF fell. to a low of $86.91 before triggering the daily market structure low (MSL) breakout through the $90.97 level, staging the next phase to a high of $105.81 on January 23, 2024 The daily relative strength index (RSI) cut and settled below the overbought 70 band despite the 25-point run-up. The daily market structure sell trigger form high (MSH) is at $101.76. The 50-period daily moving average (MA) support is rising at $86.69. The pullback support levels are at $90.97, $82.60, $79.20, and $71.14.

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