Yahoo Finance Why Abercrombie & Fitch Co. (ANF) Stock Is STILL Far From Glamorous
The retail space is an absolute minefield right now, and that’s putting it lightly. This earnings season retail stocks have been all over the shop, with companies like Ross Stores, Inc. (NASDAQ:ROST) making their way markedly higher following encouraging results and others like Victoria’s Secret parent L Brands Inc (NYSE:LB) saw investors flee in the aftermath of a second quarter earnings disappointment. There’ve been some highs and a lot of lows, but very few muted earnings reactions within the retail space.
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Now, with Abercrombie & Fitch Co. (NYSE:ANF) stepping up to the plate to release second-quarter results on Thursday, ANF stock investors are wondering whether we’ll see a home run or a strike out.
Unfortunately for the once heralded teen’s brand, I think the latter is more likely.
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ANF Stock: It’s All About the Comps
The biggest thing on traders’ minds when it comes to retail results is comps. Declining comparable sales suggest that brick-and-mortar stores like ANF are succumbing to the dreaded Amazon.com, Inc. (NASDAQ:AMZN) effect, but growth provides a glimmer of hope that consumers haven’t abandoned the brand just yet.
At the beginning of the year, Abercrombie & Fitch was able to eek out 3% comparable sales growth at its surfer-style Hollister stores, a pleasant surprise for ANF stock owners. However, the problem for Abercrombie is that same-store sales for its flagship brand declined 10%, which is not out of the ordinary when you look at the brand’s performance in quarters past.
In the second quarter, we can expect much of the same. Comps are likely to slide for Abercrombie and management has warned that currency headwinds, promotional activities and a challenging environment will probably continue to put pressure on margins. The only silver lining that can be expected are positive comps for Hollister, but nowhere near what ANF would need to offset weakness in the Abercrombie brand.
ANF management claims investors will start to see a revival in the second half of the year, suggesting that the second quarter will be the final in a string of disappointing results. However, there has been very little data to back this theory up. Thursday’s call should provide some insight into whether a better second half is still expected and what catalysts are driving that growth.
Abercrombie & Fitch: Future Plans
Outside of same-store sales, investors will also be focusing on management’s plans for the future. Earlier this summer the company appeared to be ready to put itself up for sale. ANF stock investors responded favorably, but a few weeks later, management quashed those rumors, saying that a sale wasn’t in the firm’s best interest.
As competitors drop like flies around ANF and the firm’s financials continue to turn up in the red, its hard to see why Abercrombie wouldn’t want to explore a sale. However, management claims to have a grand turnaround plan, and investors will want to know more about it.
CEO Fran Horowitz seems bent on reviving the namesake brand, despite the fact that marketing campaigns and style overhauls have done very little to make that happen. Horowitz has said he might go back to the firm’s provocative roots — shirtless store attendants and over-sexualized catalogues — to reignite enthusiasm for the brand. However, so far investors haven’t heard any concrete plans, and most agree it will take more than a few half-naked models to turn this ship around.
One of Abercrombie’s biggest issues is competition from fast-fashion brands like H&M Hennes & Mauritz (OTCMKTS:HNNMY). Hollister more closely mimics brands like H&M with a shorter production cycle and lower price point. ANF could steer itself in that direction in order to improve the brand’s popularity, but there is some question as to whether there’s room for another fast-fashion brand.
The second-quarter earnings call will be paramount because it will give Wall Street a chance to find out what’s next for ANF stock. Although Abercrombie and its supposed suitors were unable to agree on buyout terms, does that mean a sale is completely out of the question or is the firm still shopping around for buyers? If a sale is a definite no-go, what’s management going to do about the Abercrombie brand’s shortcomings?
Bottom Line on Abercrombie
It’s not looking good for ANF stock. There is very little that management could say on Thursday that would drum up a bull case for Abercrombie. Not only have we seen profitability decline by more than 200% over the past 3 years, but the company is also grappling with $263 million in long-term debt. That’s troubling when you consider that it isn’t turning a profit.
Unless management reconsiders the possibility of a sale, I’d stay well away from ANF stock. The company is barely keeping its head above water, which is a big problem as the retail industry is incredibly choppy right now. While it’s true that Hollister has been able to generate some momentum, it’s difficult to imagine Abercrombie seeing a revival.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
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