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Abercrombie's Strategic Initiative Shows Potential

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On Jun 27, 2014, we issued an updated research report on Abercrombie & Fitch Company (ANF - Free Report) following the company's impressive first-quarter fiscal 2014 results.

In a surprising turnaround driven by its focus on executing long-term strategic plans, the company posted narrower-than-expected first-quarter fiscal 2014 loss and reaffirmed its outlook for the fiscal year, giving some respite to investors.

Despite unfavorable weather conditions along with a challenging teen retail environment, Abercrombie posted an adjusted loss per share of 17 cents, which was in line with the company’s expectations and fared better than the Zacks Consensus Estimate of a loss of 18 cents. With this beat, the company has now surpassed expectations for the third consecutive quarter.

Buoyed by upbeat quarterly performance and its stringent focus on successful execution of long-term strategic plans, the company continues expecting significant improvement in its business in 2014 and beyond.

Apart from better-than-expected first-quarter results, Abercrombie’s growth story looks compelling. We believe that management’s focus on expanding global operations and improving cash flows, while maintaining a healthy balance sheet, bode well for future growth.

On the flip side, the company’s comps performance is showing a declining trend and has remained negative for the past nine consecutive quarters. Moreover, Abercrombie is expecting comps to fall in the range 3% to 4% in fiscal 2014. Therefore, considering this downward trend, we remain apprehensive about the company’s future comparable store sales performances.

Further, Abercrombie operates in a competitive environment and strives to maintain its market share, actively competing with numerous manufacturers and distributors of apparel and related products. The company primarily competes on the basis of brand recognition, fashion, price, service, store location and quality. Failure to offer high-quality differentiated products at a competitive price may hamper Abercrombie’s market share, and thereby it’s top and bottom-line performances.

Therefore, Abercrombie currently carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked stocks in the shoe/apparel retail industry include Citi Trends, Inc. , The Men’s Wearhouse, Inc. and Foot Locker, Inc. (FL - Free Report) . While Citi Trends holds a Zacks Rank #1 (Strong Buy), Men’s Wearhouse and Foot Locker carry a Zacks Rank #2 (Buy).

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