Citi announced on Thursday that it is cutting its rating on Abercrombie & Fitch (NYSE: ANF) from Buy to Neutral, stating that the retailer’s sharp post‑earnings rally has left the risk‑reward profile more balanced. The downgrade follows a 36% jump in the stock price the previous day, which Citi believes limits upside to only about 6% from its revised price target of $156, up from the prior $135 target.
Analyst Paul Lejuez noted that the second‑quarter was “all‑around impressive” and that third‑quarter/second‑half guidance is very encouraging, but emphasized that the rating change is not driven by fundamentals. Second‑quarter results beat expectations on both sales and gross margin, and third‑quarter‑to‑date commentary was especially positive, with Hollister sales accelerating versus the second quarter and the Abercrombie brand maintaining momentum. An earlier‑than‑expected re‑acceleration in the EMEA region was also highlighted.
Citi sees upside to the second‑half average unit retail guidance, which assumes only modest growth after a mid‑single‑digit increase in the second quarter driven by a pullback in promotions across all regions and both brands. Management indicated that Hollister’s second quarter was a “tale of two halves,” with early choppiness due to low inventory before demand materialised as stock improved. The third‑quarter acceleration is not being driven by new store openings or wholesale activity.
Citi raised its fiscal 2026 and fiscal 2027 earnings estimates to $13.64 and $13.80 respectively, up from $11.10 and $12.65 previously. The firm models 5.2% sales growth for the year and a 14.9% EBIT margin.