Abercrombie & Fitch Co. (ANF) has been on a five-year slide as the company had fallen out of favor with its former core market. But a new CEO is implementing a turnaround plan and beginning to see results, with four positive EPS surprises in a row, explains Deborah Ciervo, a leading analyst with Argus Research.

To help broaden the appeal of the ANF brand, the company has also hired a new chief marketing officer and launched a new marketing campaign focused on ANF’s historic association with outdoor adventure and exploration.

We note that young consumers’ perceptions of the ANF brand have also improved significantly, according to a YouGov BrandIndex survey, which should help to boost sales and market share over time.

The company continues to refine its store portfolio, which included 680 U.S. stores and 189 overseas locations at the end of 1Q, including one new Hollister store opened during the quarter.

In FY19, management plans to add 13 Hollister and 9 Abercrombie full-price stores, and expects to close about 60 stores in the U.S. through natural lease expirations.

Management is planning 13 A&F prototypes, 7 kids prototypes, and 50 Hollister new-format stores this year. The new stores feature a smaller footprint intended to boost customer engagement, and are already showing increased traffic and improved productivity.

From a technical standpoint, the shares had been in a long-term bearish trend of lower highs and lower lows that dated to May 2013, but a double-bottom in the $8-$9 range has acted as a floor and the recent trend has been bullish.

On the fundamentals, the shares are trading at a discount to peers and below historical average multiples, and, in our view, remain attractive given the company’s turnaround potential.

We note that the turnaround at this small-cap company carries risks, and believe that the shares are more suitable for investors with higher risk tolerance.

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