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Comparing Apparel Retailers’ Valuation

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Current valuation

As of April 11, 2018, apparel retailer Abercrombie & Fitch (ANF) had a 12-month forward PE (price-to-earnings) ratio of ~36.0x, much higher than peers’ and the S&P 500’s. American Eagle Outfitters (AEO), Urban Outfitters (URBN), and Gap (GPS) had ratios of 14.8x, 17.0x, and 11.6x, respectively, while the S&P 500’s ratio was 16.9x.

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Valuation changes after the holiday quarter

As of April 11, 2018, Abercrombie & Fitch’s valuation had risen 14.1% since it posted better-than-expected fiscal 4Q17 results on March 7. Meanwhile, American Eagle Outfitters’ valuation had fallen 15.5% since the company posted its fiscal 4Q17 results on March 8. Though the company beat top-line estimates and its adjusted EPS (earnings per share) were in line with expectations, its subdued margins caused a stir among investors, leading to a sell-off.

Despite better-than-expected top and bottom lines during the holiday quarter, Urban Outfitters and Gap have seen their valuation fall 4% and 9.6%, respectively. In fiscal 4Q18, Urban Outfitters’ EPS took a beating due to tax reform. Gap’s valuation rose after it posted its results on March 1, but then fell, losing 10.3% of its value as of April 11, 2018

Analysts’ growth expectations

  • In fiscal 2018, Abercrombie & Fitch is projected to report sales and adjusted EPS growth of 1.8% and 21.5%, respectively.
  • In fiscal 2018, American Eagle Outfitters is projected to report revenue and adjusted EPS growth of 2.9% and 24.1%, respectively.
  • In fiscal 2019, Urban Outfitters is projected to report sales and adjusted EPS growth of 5.7% and 44.6%, respectively.
  • In fiscal 2018, Gap is projected to report sales and adjusted EPS growth of 2.8% and 23.5%, respectively. 

Among apparel retailers, analysts are most bullish on Urban Outfitters, as the company’ digital sales continue to impress. The company aims to direct tax reform savings towards developing its direct-to-customer sales channel in fiscal 2019.

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