Abercrombie & Fitch (ANF) has room for long-term earnings growth as healthy demand, stronger margins, improving brand trends, and a low valuation may support the stock, though geopolitical risk may loom in the near term, UBS Securities said Wednesday in a report.

Fiscal Q1 results showed solid customer demand and better gross margins despite tariff pressure, reinforcing the view that Abercrombie's strategy is working, the report said. UBS expects Q2 sales growth to improve from Q1, helped by easier comparisons following last year's enterprise software disruption and modest gains in average unit retail.

Demand at the teen-focused Hollister brand remains healthy in the Americas, which account for most of the company's sales, though weakness in Europe, the Middle East and Africa may partly offset growth, the report said. UBS expects Q2 gross margin pressure from tariffs and lower freight benefits, though conditions may improve in H2 as higher average unit retail and promotions take hold.

Abercrombie brand trends appear to be stabilizing after a difficult fiscal 2025, with traffic and conversion holding steady and average unit retail improving, the report said.

UBS cut its price target on Abercrombie stock to $136 from $149 amid increased geopolitical risk. It maintained its buy rating and its earnings estimates in fiscal 2026 to 2028.

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