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Macro forces will cause ANF's growth to slow

America is slowly forgetting Abercrombie & Fitch, UBS survey shows


As Abercrombie & Fitch Co. (ANF) attempts to distance itself from a tumultuous period in the brand's history, the retailer is facing another challenge: obscurity.


According to a recent report by UBS Evidence Lab, which surveyed 1,000 consumers in the U.S. and 6,500 consumers elsewhere, awareness of the brand lagged behind other specialty retailers.


Although the Swiss bank found that that consumer perceptions improved around Abercrombie's pricing, quality, and designs over the last 12 months, unaided awareness of the brand — defined as "the percentage of respondents that are aware of a brand without being prompted with details of the brand" — dropped from 1.1% in 2021 to 1.0% in 2022 after hitting a recent high of around 4% in 2019.


Nike, the top brand overall registered an unaided awareness level of 30.4% in 2022 while ANF sister brand Hollister clocked in at 2%. Of the 32 brands listed, ANF came in last.


Abercrombie & Fitch's aided awareness — defined as "the percentage of respondents that are aware of a brand when being asked about it directly, or when prompted" — also saw a decline of nearly 17% from 70.9% in February 2018 to 54% in February 2022.


Americans under the age of 45, particularly, saw large drops in aided awareness:


The bank has a Neutral rating on ANF stock given that stock prices of apparel companies "will remain under pressure" amid the current macro environment.


"The key conclusion is ANF's brands show signs of improvement in the US," the UBS analysts wrote. "However, the company must do more to increase its brands' awareness."


Abercrombie's rebrand

The fading recognition of the New Albany-based retailer known for its topless male marketing, exclusive preppy fashion, and dimly-lit stores comes in the middle of a brand makeover following numerous scandals and changing consumer behavior.


In 2018, ANF set a goal to revamp its brand culture and financially restore the company. Ditching the privilege and prep aesthetic for refined basics and a more down-to-earth look, Abercrombie emerged as an on-trend brand that was targeted at those entering adulthood.


Canada vs Belgium live


Belgium v Canada live


Sales dipped following the pandemic lockdowns as they did for many other retailers. However, the brand was able to rebound in 2021, hitting its best sales mark in five years.


One bright spot for ANF is that Americans who know the brand now actually like them: According to the UBS survey, Abercrombie & Fitch's Net Promoter Score in the U.S. jumped from -7 % in 2020 to 35% this year.


On June 16, Abercrombie CEO Fran Horowitz and her executive team shared with investors how the company expects to continue growth and plans to become a $5 billion business in the future. Those plans included leaning into active apparel, occasion-based apparel, and opening retail stores.


The short-term goal targets annual sales between $4.1 billion and $4.3 billion by 2025 and an operating margin at or above 8%.


"Abercrombie is back," Horowitz told Yahoo Finance Editor-at-Large Brian Sozzi.


The UBS analysts, meanwhile, pointed to more headwinds for growth in the category overall.


"We think macro forces will cause ANF's growth to slow, making it hard for the stock to re-rate," they wrote. "We believe management is taking the right actions to drive sales growth and preserve some of its FY21 operating margin gains, so perhaps the stock will become attractive again later. We model margins reaching 5.2% by FY26E, vs. 2.3% in FY19, given ANF's self-help initiatives."


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Found: 02.07.2022

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