Abercrombie & Fitch Earnings Preview: Near-Term Growth Strategy In Focus

Teen apparel retailer Abercrombie & Fitch (NYSE:ANF) is scheduled to announce its Q2 fiscal 2012 earning on August 15. ^[1] Having disclosed its quarterly revenues and comparable sales growth in its August 1 update, ^[2] we expect Abercrombie’s near-term growth strategy to be the focus of its Q2 earnings.

As Europe continues to weigh heavily on its results, Abercrombie’s revised strategy will be keenly watched by investors on Wednesday. Abercrombie & Fitch competes with other specialty retailers such as Aeropostale (NYSE:ARO), American Eagle Outfitters (NYSE:ANF) and Gap Inc. (NYSE: GPS) in the teen apparel space.

Check out our complete analysis of Abercrombie & Fitch

Abercrombie & Fitch: What’s going to be the new strategy?

Until now, Abercrombie’s growth strategy was heavily focused on its international business as its international stores were more productive and profitable compared to its U.S. stores. The strategy paid dividends for the company last year as Abercrombie’s stock soared despite competitors such as Aeropostale and Gap suffering on higher product costs and excessive promotions in domestic markets. However, with Europe reeling under severe sovereign debt crisis, Abercrombie’s focus on international expansion seems to have backfired. With international business growth coming down from highs of 74% in Q2 2011 to 31% this quarter, Abercrombie’s stock has shrunk too, losing roughly 60% of its value within a span of 9 months.

The company seems to have realized this as CEO Mike Jeffries commented about revising its strategy in Europe in the last business update. The situation however isn’t much more favorable in the U.S. either. With a comparable sales decline of 5% domestically during the quarter, Abercrombie ended its Q2 U.S. sales at $648 million, a decline of 5% compared to the same period last year. Comparing the results with competitors such as American Eagle Outfitters and Gap, which posted healthy Q2 comps increase, it isn’t hard to guess that competitors are eating into Abercrombie’s domestic market share too.

So the challenge for the company is to come up with a strategy that not only addresses the woes surrounding its international business growth, but also ensures that its domestic market share remains intact. If Abercrombie is able to satisfactorily address these issues with its new strategy, we can see a significant rise in investor confidence but, if not, the already dwindling investor confidence might see a fall…yet again!

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Abercrombie & Fitch to announce Q2 2012 earnings on August 15th, Source: Abercrombie’s IR [↩]
2. Abercrombie provides Q2 business update, Source: Abercrombie’s IR [↩]