After months of preliminary deliberations with multiple bidders, including American Eagle and front runner Cerberus, Abercrombie & Fitch Co. (NYSE:ANF) revealed on Monday that it would not be moving forward with plans for a potential sale. This news comes on the heels of speculation that a deal was to close between June and July.
Analyst Dylan Carden of William Blair explains that after the Abercrombie board had cut expectations by dropping its sell target from between $14.50-$15.00 to $13.50 per share, “ultimately the two parties could not agree on valuation.” This reflects Abercrombie management’s evaluation that canceling sales negotiations would allow the company “to continue with strategic initiatives, reaffirming expectations for improved performance by the second half of this year.” Carden further opined that due to “A&F brand’s continued double-digit negative comp performance […] bidders were unwilling to offer much of a premium for the company, and most likely would not meet management’s revised $13.50 expectation.”
However, Abercrombie is not the only company struggling to sell in recent days. As such, the analyst reiterates an Outperform rating on shares of ANF without listing a price target. (To watch Carden’s track record click here.) For instance; Kate Spade sold to Coach for 9 times less than its company’s net earnings, while it should have sold for at least 10 to 12 times its EBITDA. Other companies such as West Marine, eBags, ModCloth, Moosejaw, and Destination Maternity also sold for much less than expected. Carden attributes this decade-long trend to two primary factors: “power that buyers have in the current retail climate and broader caution about continued supply rationalization.”
The analyst was optimistic that a number of Abercrombie initiatives could spark “shares to return to a range closer to trading pre-deal speculation.” Initiatives include the continued rise in sales at Hollister, merchandising for the A&F brand, a new loyalty program together along with a series of investments to improve marketing and the brand’s omnichannel experience. In fact, as of Monday Abercrombie shares had shown signs of improvement by breaking the $10 level, strengthening confidence in a continued upturn.
TipRanks analytics indicate ANF as a Sell. Out of 10 analysts polled by TipRanks in the last 3 months, 7 are Neutral while 3 are bearish. With a return potential of nearly 33%, the stock’s consensus target price stands at $12.29.