Bleak Outlook Causes Abercrombie & Fitch’s Stock To Plummet 20%

August 31st, 2016 by Trefis Team
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ANF: Abercrombie & Fitch logo
ANF
Abercrombie & Fitch

Abercrombie & Fitch (NYSE:ANF) announced its second quarter results on August 30, 2016. While the company marginally beat the revenue estimate, it missed the EPS expectation by $0.06.

ANF- Q2 2016 ANF- Q2 Comps

Abercrombie & Fitch posted its 14th consecutive quarter of declining sales, while at the same time saying the comparable sales will be challenging for the remainder of the year as well. This is a swift about-face from the forecast the company issued in May, when it expected results to improve in the second half of the year. Lower traffic, particularly from tourists, can be primarily blamed for this. Moreover, the company has struggled to compete with fast-fashion brands, such as Zara and H&M. While Abercrombie has attempted to convert Hollister into a fast-fashion house, by hiring designers to keep up with the trends, and shifting away from the logo-centric designs, the comparable sales for the brand fell in the quarter, after a flat performance in the first quarter. The company is also remodeling its Hollister stores, with 32 remodeled in the quarter and a further 20 to be completed by the end of the year. Additionally a new A&F prototype is being developed, which will be tested in early 2017.

See our complete analysis for Abercrombie & Fitch

ANF is also focusing on its mobile and omni-channel capabilities, which saw strong growth, both in the domestic and the international markets. Sales through mobile orders jumped nearly 60%, and their recent initiative of buy online, pickup in store, accounted for 7% of all online orders. The DTC (Direct To Consumer) business grew to 23% of the total sales, as compared to 21% in the previous year. The company also announced a partnership with online retail platform Zalando in the last week, which will give it access to the latter’s over 18 million active customer base.

ANF- Q2 DTC

The company also announced a closure of an additional 60 underperforming stores, and with the expiration of half of its leases in the next year, it will have greater flexibility to shut down more stores. However, this may not necessarily mean a more smaller and leaner Abercrombie in the future. This is because ANF has undertaken to open more outlet stores, where products are normally sold at cheaper prices. The company’s margins are already under pressure as a result of reduced prices, and further opening such discounted stores may not result in a positive outcome.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Abercrombie & Fitch
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