Abercrombie & Fitch (NYSE: ANF) Still In Fashion After Earnings A 7% gap up off the open in yesterday's session should tell you all you need to know about Abercrombie & Fitch's (NYSE: ANF) latest earnings report.

A 7% gap up off the open in yesterday's session should tell you all you need to know about Abercrombie & Fitch's (NYSE: ANF) latest earnings report. For management and investors alike, it was a good day. Shares traded up as much as 15% at one point and though they gave back half of that by the close it was still one of their best days in weeks.

Going off the numbers alone, it was without a doubt a stellar report, and one that should underpin a fresh rally in Abercrombie shares. They're already trading close to multi-year highs with a 500% run from last March showing no signs of slowing down just yet. Like many of the other fashion names out there that managed to get through the darkest days of 2020's lockdowns, the landscape of 2021 and beyond is looking a lot brighter than might have previously been imagined. But even within that group, Abercrombie has earned a fresh reputation over the past year as one of the stronger fashion names out there and is well worth considering if you're looking to add some reopening exposure to your portfolio.

Solid Beat

For starters, from a fundamental and macro point of view, there's a lot to like. Revenue was up 60% on the year while GAAP EPS was firmly in the black at $0.64 even though analysts had been expecting a red print of -$0.48. As an investor, that's one of the best kinds of surprises to get but there was, even more, to like beyond the topline and bottom-line numbers.

Digital sales were up 45% on the year and accounted for more than half of total sales, an impressive way to confirm that the company's COVID-inspired pivot towards online shopping is already paying dividends. Abercrombie's gross profit rate jumped to 63.4%, driven in large part by higher average unit retail on lower store-wide promotions.

An ongoing store optimization initiative saw the company's flagship store in Singapore shut, but Wall Street looks to have taken this as a net positive if yesterday's reaction seen in the stock is anything to go by. CEO Fran Horowitz struck an unsurprisingly bullish tone with the release, saying "momentum has continued into the second quarter across brands, and early reaction to our newest member of the A&F Co. family, Social Tourist, has been amazing. Our solid foundation and strong liquidity position enable us to be on the offense. We remain focused on profitable topline growth, our ongoing digital evolution, and our growth vehicles, including Gilly Hicks, and are committed to thoughtful expense management and global square footage optimization. Although the global landscape remains uncertain, I am excited about the future and more confident than ever in our ability to drive sustainable, long-term operating margin expansion."

Price Target Increases

It's also not surprising that even after the staggering run seen in shares over the past few months, Wall Street is still calling for more. Only last week, UBS increased their price target by 10% and this was easily taken out in yesterday's pop. Analyst Jay Sole pointed out at the time that "Abercrombie & Fitch is likely benefitting from the reopening-driven spending surge, the new denim cycle, tight inventory management, strong expense controls, and fiscal stimulus. We think these factors are more potent than the market realizes." Looking at just how easily the company beat the general consensus yesterday, it's fair to say Jay was on the money with that call.

Even against some of their industry peers, Abercrombie is by far one of the better performing in recent months which lends itself to the theory that it should continue to outperform the broader fashion segment. Looking at share performance since the first week of April 2020, Abercrombie shares are up more than 400%, well above prints from Kohl's (NYSE: KSS) at 380%, Ralph Lauren (NYSE: RL) at 100%, and Ross Stores (NASDAQ: ROST) at 70%.

With an earnings beat and subsequent reaction in the share price like what we've just seen, you'd have to back Abercrombie to continue outperforming and to make a name for itself as one of the better picks for the second half of 2021 and beyond.

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