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The traditional brick and mortar retail apparel environment continues to face significant headwinds from online companies like Amazon. These online companies are taking a larger portion of the total market share each quarter and forcing the traditional stores to make drastic cuts to store counts, inventory, and headcounts. Further, if the traditional company misses a hot style, a new trend, or a seasonal category, they can see their top lines go into free fall. These are some of the issues facing our Zacks Bear of the Day, Abercrombie & Fitch (ANF - Free Report) .
This Zacks Rank #5 (Strong Sell) company is principally engaged in the purchase, distribution and sale of men's, women's and kids' casual apparel. The company's retail activities are conducted under the Abercrombie & Fitch and Abercrombie trade names through retail stores, a catalogue, a magazine/catalogue and a website, all bearing some form of the company name. Merchandise is targeted to appeal to customers in specialty markets who have distinctive consumer characteristics.
Recent Earnings Performance
The company posted year over year losses in net sales -6% with declines in net sales for Abercrombie -13% and Hollister -1%, domestic net sales -7%, international net sales -5%, and operating income -52.2%. On the positive, management did declare a quarterly dividend of $0.20 per share during the quarter.
Management’s Take
According to Arthur Martinez, CEO, “For A&F, flagship and tourist locations continued to be a major headwind. In addition, chain store traffic patterns remained negative. Weakness in A&F was compounded by underperformance of seasonal categories, which ultimately led to pressure on gross margin. While we anticipate the A&F business will remain challenging through the balance of the fiscal year, we continue to move aggressively to evolve the brand across all channels through significant changes in product, customer experience and marketing. A comprehensive set of strategic and operational actions is being taken by an experienced team under new leadership, and we expect to see benefits as our efforts gain traction.”
Price and Earnings Consensus Graph
As you can see in the graph below, both ANF’s stock price and future earnings outlook have been declining for several years.
Due to the issues at their flagship Abercrombie & Fitch stores and tourists locations earnings estimates for Q4 16, Q1 17, FY 16 and FY 17 have all seen downgrades over the past 30 days. Q4 16 dropped from $1.08 to $0.80, Q1 17 fell from -$0.54 to -$0.58, FY 16 plummeted from $0.44 to -$0.01, and FY 17 declined from $0.71 to $0.28.
Bottom Line
Negative chain store traffic patterns, and the difficulty of moving seasonal items once again accounted for the quarterly miss. But on the positive side direct to consumer and omnichannel sales accounted for 23% of total company sales, a 2% increase from last year’s numbers. This concentration on online sales is commendable, but it needs to be much more robust to compete with the likes of Amazon.
If you are inclined to invest in the retail/apparel/shoes segment, you would be best served by looking into Tillys Inc. (TLYS - Free Report) , Zumiez Inc. (ZUMZ - Free Report) , and or Children’s Place (PLCE - Free Report) , all of which currently carry a Zacks Rank #1 (Strong Buy).
So Where Are the Profitable Trades?
Be sure to short or avoid this Bear Stock of the Day. Now would you like to see Zacks' recommendations that have the best profit potential? Starting today, for the next month, you can follow all our private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for all Zacks trades >>
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Bear of the Day: Abercrombie & Fitch (ANF)
The traditional brick and mortar retail apparel environment continues to face significant headwinds from online companies like Amazon. These online companies are taking a larger portion of the total market share each quarter and forcing the traditional stores to make drastic cuts to store counts, inventory, and headcounts. Further, if the traditional company misses a hot style, a new trend, or a seasonal category, they can see their top lines go into free fall. These are some of the issues facing our Zacks Bear of the Day, Abercrombie & Fitch (ANF - Free Report) .
This Zacks Rank #5 (Strong Sell) company is principally engaged in the purchase, distribution and sale of men's, women's and kids' casual apparel. The company's retail activities are conducted under the Abercrombie & Fitch and Abercrombie trade names through retail stores, a catalogue, a magazine/catalogue and a website, all bearing some form of the company name. Merchandise is targeted to appeal to customers in specialty markets who have distinctive consumer characteristics.
Recent Earnings Performance
The company posted year over year losses in net sales -6% with declines in net sales for Abercrombie -13% and Hollister -1%, domestic net sales -7%, international net sales -5%, and operating income -52.2%. On the positive, management did declare a quarterly dividend of $0.20 per share during the quarter.
Management’s Take
According to Arthur Martinez, CEO, “For A&F, flagship and tourist locations continued to be a major headwind. In addition, chain store traffic patterns remained negative. Weakness in A&F was compounded by underperformance of seasonal categories, which ultimately led to pressure on gross margin. While we anticipate the A&F business will remain challenging through the balance of the fiscal year, we continue to move aggressively to evolve the brand across all channels through significant changes in product, customer experience and marketing. A comprehensive set of strategic and operational actions is being taken by an experienced team under new leadership, and we expect to see benefits as our efforts gain traction.”
Price and Earnings Consensus Graph
As you can see in the graph below, both ANF’s stock price and future earnings outlook have been declining for several years.
ABERCROMBIE Price and Consensus
ABERCROMBIE Price and Consensus | ABERCROMBIE Quote
Declining Estimates
Due to the issues at their flagship Abercrombie & Fitch stores and tourists locations earnings estimates for Q4 16, Q1 17, FY 16 and FY 17 have all seen downgrades over the past 30 days. Q4 16 dropped from $1.08 to $0.80, Q1 17 fell from -$0.54 to -$0.58, FY 16 plummeted from $0.44 to -$0.01, and FY 17 declined from $0.71 to $0.28.
Bottom Line
Negative chain store traffic patterns, and the difficulty of moving seasonal items once again accounted for the quarterly miss. But on the positive side direct to consumer and omnichannel sales accounted for 23% of total company sales, a 2% increase from last year’s numbers. This concentration on online sales is commendable, but it needs to be much more robust to compete with the likes of Amazon.
If you are inclined to invest in the retail/apparel/shoes segment, you would be best served by looking into Tillys Inc. (TLYS - Free Report) , Zumiez Inc. (ZUMZ - Free Report) , and or Children’s Place (PLCE - Free Report) , all of which currently carry a Zacks Rank #1 (Strong Buy).
So Where Are the Profitable Trades?
Be sure to short or avoid this Bear Stock of the Day. Now would you like to see Zacks' recommendations that have the best profit potential? Starting today, for the next month, you can follow all our private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for all Zacks trades >>