Has Abercrombie & Fitch (NYSE: ANF) passed its heyday among high school students? The retail chain used to be crowded with adolescents shopping for the newest cut of jeans while parents tested their patience in the cologne soaked stores. However, A&F released its third quarter earnings report on December 3rd, revealing abysmal results.
A&F reported an adjusted non-GAAP net income of $30.4 million, compared to $40.5 million of the same quarter last year. The reported adjusted non-GAAP net income per diluted share was $0.42, compared to $0.52 from the same quarter of last year. Abercrombie & Fitch lowered its guidance for the fiscal year of $2.15 – $2.35 down to $1.50 – $1.65. All in all, quarterly sales dropped 12%.
CEO Mike Jeffries attributed the “disappointing” report to “a very challenging environment for young apparel.” He expects “conditions to remain difficult through the balance of the fourth quarter.” However, Jeffries noted changes being made to take the company in the right direction, such as a “shift to a branded structure, changes in [the] assortment and how [A&F] engage[s] with [the] customer, investing in direct-to-consumer and omni-channel, expanding… international reach, closing underperforming stores, and continuing to reduce expense.” Jeffries seemed confident that the “aggregate impact of these changes represents a significant transformation” for A&F and he is “hopeful that the benefits will start to become evident” through 2015.
Many consumers still have a sour taste in their mouth from Mike Jeffries, who came under fire last year for comments about who can and cannot shop at A&F. Jeffries wanted the shop to be for “cool kids,” and did not stock women’s clothing in extra-large sizes. Earlier in 2006, Jeffries said in an interview that A&F hires good looking people in the stores because “good-looking people attract other good-looking people, and we want to market to cool, good-looking people. We don’t market to anyone other than that… Candidly, we go after the cool kids… Are we exclusionary? Absolutely.” In 2013, Jeffries made a statement about the 2006 comments, saying “I sincerely regret that my choice of words was interpreted in a manner that has caused offense.”
On December 3rd, blogger John Divine of Motley Fool wrote on InvestorPlace that he is “bearish” on ANF. Divine explained that teens, A&F’s key demographic, are “notoriously fickle consumers.” He is not impressed that Abercrombie’s “EPS of 42 cents beat consensus expectations by a penny” because “Wall Street has learned to expect less and less of Abercrombie.” Divine continued, “There is literally no long-term bullish catalyst on the horizon for Abercrombie… The area is too competitive and it’s close to impossible to squeeze long-term pricing power out of a teenage apparel brand forever.”
Divine has a 69% overall success rate recommending stocks with an average return of +4.9% per recommendation.
Separately on December 3rd, analyst Adrienne Tennant of Janney Capital reiterated a Neutral rating on A&F and raised her price target to $26. Tennant highlighted the drop in sales and earnings per share. She attributed her neutral rating to “decelerating total comparable sales… FX headwinds and weak European sales trends that are likely to weigh more negatively on performance in the next few quarters;” and “uncertainty regarding shift in merchandise assortment that we believe abandons legacy/logo product shoppers, while not yet connecting with new, fashion forward shoppers.”
Tennant has a 47% overall success rate recommending stocks with an average return of +4.6% per recommendation.
Abercrombie & Fitch has bold plans to get back on track, but will it pay off?
On average, the top analyst consensus for ANF is Hold.