Why Abercrombie & Fitch Stock Surged Today

ANF +5.43%

Key Points

• Abercrombie & Fitch bested Wall Street's earnings forecasts.

• The retailer's Hollister brand is resonating with younger shoppers.

• 10 stocks we like better than Abercrombie & Fitch ›

Shares of Abercrombie & Fitch (NYSE: ANF) rocketed 37% higher on Tuesday after the apparel retailer's fiscal third-quarter profits exceeded investors' expectations.

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.

Why Abercrombie & Fitch Stock Surged Today was originally published by The Motley Fool