The Abercrombie & Fitch share price chart looks like a challenging stage of the Tour de France. Over five years, this wild ride has given shareholders a return of 800%! Of course, the world was imploding five years ago, so that’s not a particularly relevant base any more. If you choose a start date in January 2020, you’ll still see an eye-watering return of 460%. But in the past 12 months, punters are down 27%. Here’s the real kicker: the year-to-date performance in 2025 is a drop of 44%. Clearly, things have cooled off.
When you see returns like these, then there are only two explanations. The first possibility is that you are looking at a start-up that has hit the J-curve and gone on a journey to the moon, rewarding investors who enjoy operating at the sharp end of the risk-return spectrum. The second possibility is that you’re staring at a turnaround story, where a company flirted with death and then managed to get things right, rewarding those who once again are happy to take on loads of risk. Venture capitalists and turnaround punters aren’t all that different.
The name Abercrombie & Fitch has been around since 1892, so this ain’t no start-up. Originally an outdoor speciality retailer, it went on quite the journey from selling fishing and hunting gear to operating a highly sexualised brand image that had shirtless male models at the centre of the strategy. Eventually, under immense pressure, Mike Jeffries retired as CEO in 2014. It’s been anything but a quiet retirement, as he is facing charges related to an international sex trafficking and prostitution scheme that he’s been accused of running. Needless to say, the retailer had to work hard to shed the image that Jeffries created for the group.
Spearheading this effort is Fran Horowitz, who was promoted to the top job in 2017 after leading the turnaround at Hollister, one of the brands in the Abercrombie & Fitch stable. Naturally, appointing a strong woman to the top job was quite the palate-cleanser after Jeffries. She quickly got to work, shedding the group’s “frat boy” image and targeting a much broader demographic. This is where things get particularly interesting, as the group is a prime example of how widening the funnel and deliberately appealing to more people was the secret sauce for the turnaround. In most turnarounds, you see companies aiming for sharper focus and simplified operations.
Why the difference? The answer lies in the reason the turnaround was needed in the first place. Abercrombie & Fitch had become a plaything for its CEO rather than a business that stood any chance of appealing to current consumer tastes. Thus, a complete change of direction was needed to bring a new type of customer through the door. Conversely, most turnaround stories are due to companies becoming bloated and unfocused, spreading themselves too thin and breaking the balance sheet in the process. The cure in such a case is of course to cut away the damaged tissue and focus on the muscles that can still be saved.
The net result is that operating margins leapt from just 0.1% (when things were very broken) to a healthy 15%. As turnarounds go, that’s a thing of beauty
Did it work? Revenue grew from $3.3bn in the year ended January 2017 to $4.95bn in the year ended January 2025. Over the same period, gross margins improved slightly from 61% to 64.2%. Operating expenses were very well managed, up from $2bn to just $2.4bn. The net result is that operating margins leapt from just 0.1% (when things were very broken) to a healthy 15%. As turnarounds go, that’s a thing of beauty.
So, why the recent share price pressure? As is so often the case, the valuation holds the key. When things were terribly broken, the price-to-sales ratio (p/s) was 0.25. In 2024 when the market was in love with the stock, it peaked at 2.26. After the recent sell-off, it’s at 0.9. The p/s is the cleanest way to view the valuation, as profits were volatile over the turnaround and during Covid.
When the ratio is high, the market gets jittery about a slowdown in performance. The core Abercrombie brands achieved comparable sales growth of just 5% in the fourth quarter of 2024. The Hollister brands were up 24% on the same basis. But with expected group growth in 2025 of just 3%-5%, the market dumped the stock despite the company announcing large share buybacks. With no sign of the chart bottoming out yet, both momentum traders and value investors are keeping a close eye on this one.
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