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Bear of the Day: Abercrombie & Fitch Co. (ANF)

Benjamin Rains

Shares of Abercrombie & Fitch Co. (ANF) have tanked 35% since the firm reported slower-than-projected sales growth and provided weaker guidance in the first quarter. The retailer has shifted the focus of its marketing campaigns in recent years, but slowing mall traffic and the quickly changing retail environment have hurt Abercrombie and ANF stock.

Overview & Recent Performance

Abercrombie executives blamed its disappointing Q2 2019, in part, on mall traffic, which doesn’t seem like it will pick up any time soon. The company, which also owns Hollister, also said it anticipated promotional pricing in the summer in order to move on from unsold inventory. ANF executives noted last quarter that the firm would close three flagship stores, in Milan, Japan, and New York, as part of an overall trend in retail that has seen firms shutter these massive, often high-rent locations.

Abercrombie still operates over 850 stores around the globe. But ANF, along with the likes of Macy’s (M), Kohl’s (KSS), J.C. Penney (JCP), and Nordstrom (JWN), has had a tough time growing in the Amazon (AMZN) and digital commerce age, where it seems that brands like Lululemon (LULU) have eclipsed legacy retailers. Meanwhile, Target (TGT) and Walmart (WMT) have upped their fashion-focused offerings in recent years

ANF has tried to shift its focus to slightly older consumers and move its marketing away from its shirtless model days. But investors can see that Abercrombie stock was hammered after it failed to live up to its late-2018 and first-half of 2019 hype.

 

 

 

Outlook & Earnings Trends

Looking ahead, our current Zacks Consensus Estimate call for the company’s adjusted second-quarter 2019 earnings to plummet from $0.06 per share in the year-ago period to a loss of -$0.51 a share. Abercrombie last quarter posted a loss of $0.29 per share, which was slightly better than Q1 2018’s loss of $0.56 per share. The company’s Q3 EPS figure is expected to pop 6%, with fiscal 2019’s earnings projected to fall 22.6%—driven by what is expected to be a massive Q2 decline.

Along with its expected downturns in Q2 and 2019, the firm’s earnings estimate revision activity has trended heavily in the wrong direction recently. With that said, ANF has consistently topped our quarterly earnings estimates over the last two years and boasts an average 89% positive surprise over the trailing four periods.

At the top of the income statement, Abercrombie’s Q2 revenue is projected to jump 1.3% to $853.2 million. Peeking further ahead, the company’s fiscal 2019 sales are expected to pop 1.9% to $3.66 billion, with 2020 projected to climb 1.8% higher than our current-year estimate.


 

 

Bottom Line

Abercrombie is currently a Zacks Rank #5 (Strong Sell), based, in large part, on its earnings estimate revision activity. The company also sports a “C” grade for Value in our Style Scores system and is trading at 16.8X forward 12-month Zacks earnings estimates, which marks a premium compared to its industry’s 12.8X average.

It is worth noting that ANF’s board on June 12 authorized a new share repurchase program to try to help return value to shareholders. With that said, it might be best to stay away from Abercrombie stock until it proves it can sustain any possible comeback.

Investors still interested in the Retail – Apparel/Shoes Market might instead turn to #1 (Strong Buy)-ranked Boot Barn Holdings, Inc. (BOOT) or Zumiez Inc. (ZUMZ).

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