Stifel affirms Abercrombie & Fitch (NYSE: ANF) with a Buy rating and $35 price target following Q1 results and outlook issued earlier Thursday.

Analyst Richard Jaffe noted the following key takeaways from the report:

• ANF 1Q results were less than anticipated although disappointingly consistent with the weak trend evident among select apparel retailers in the quarter. Weather, fashion, a shift in consumption patterns and the cannibalism of e-commerce provide an explanation for at least a portion of the weakness.
• Weakness Continues into 2Q but Hope for 2H – 1Q’s weakness has continued into 2Q and management has a cautious outlook for the quarter. Management expects negative comps and modest gross margin deterioration in the quarter. It is more optimistic regarding 2H as the brands’ assortments continue to improve and the company begins to see the return from significant investments in marketing, store management and omnichannel. Additionally, with the new brand presidents and other key roles filled, management believes that it has a strong team in place to drive future results.
• Markdowns Likely in 2Q – Ending inventory/sq ft is up about 2% vs. LY. Given current sales trends we believe management will need to increase markdowns in the 2Q in order to clear through excess inventory and insure that the company enters the important back-to-school season in a clean inventory position.

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