Abercrombie & Fitch (NYSE: ANF) soared nearly 20% on Tuesday morning after posting better-than-expected financials for its third quarter.
The lifestyle retailer saw its revenue pop 7.0% in the recently concluded quarter to $1.29 billion, helping earnings come in at $2.36 a share. Analysts in comparison were at $1.28 billion and $2.16 a share, respectively.
Despite the upbeat headline numbers, however, the company’s holiday quarter guidance and brand-level performance raise questions about whether this rally is sustainable.
Abercrombie stock is currently down a little under 60% versus the start of this year (2025).
Holiday guidance warrants selling Abercrombie stock
Abercrombie’s guidance for the current quarter warrants trimming exposure to the apparel retailer, not pushing its stock up some 20%.
In the earnings release, the company’s management said Q4 sales were expected to increase by 5% on a year-over-year basis, versus expectations for 5.6%.
Ordinarily, that slight miss would have been digestible – but not when it’s for the holiday quarter. Retailers are typically expected to deliver stronger momentum during the holiday season, when consumer spending peaks.
But the muted forecast from Abercrombie & Fitch suggests it’s bracing for a tougher environment, whether due to cautious shoppers or internal challenges.
Whatever the reason, the conservative outlook for a quarter where peers often post double-digit gains could dampen enthusiasm and undermine the sustainability of ANF shares’ post-earnings rally.
ANF shares require broad-based strength to sustainably rally
Hollister continues to drive quarterly strength for Abercrombie & Fitch while its namesake brand remains in shambles, which may be another major red flag for long-term investors.
In Q3, the Abercrombie brand saw sales decline by 2.0% year-over-year, and Fran Horowitz – the company’s chief executive – sees it keeping flat only in the holiday quarter as well.
Previously, he had assured investors that it would return to growth by year-end, attributing earlier weakness to inventory clearance. Yet the latest guidance suggests the recovery is stalling.
This may make investors question the management’s credibility, as overreliance on a single banner raises concerns about diversification and brand resiliency.
Over time, these concerns could make it increasingly harder for Abercrombie shares to retain their post-earnings gains.
Abercrombie’s technicals signal continued pressure ahead
From a valuation perspective, ANF stock sure looks attractive at a forward price-to-earnings (P/E) ratio of about 7.
However, its technicals also warrant treading with caution. Abercrombie & Fitch is trading below all of its major moving averages (50-day, 100-day, 200-day) – indicating the broader downtrend is intact.
Plus, its relative strength index (100-day) also currently sits nearly 50, suggesting the bears are far from exhaustion.
According to Barchart, options traders are pricing in a potential reversal in Abercrombie stock to about $62 by late February as well, further hurting the case for owning it heading into 2026.
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