Apparel Week In Review: Gap Inc, Abercrombie & Fitch And American Eagle Outfitters

Apart from Gap Inc (NYSE:GPS) releasing its August sales result, nothing significant happened in the U.S. apparel market last week. Abercrombie & Fitch (NYSE:ANF) launched an all-new men’s and women’s clothing collection following its earlier decision to gradually phase out logo products. Struggling apparel retailer, American Eagle Outfitters (NYSE:AEO) declared its quarterly cash dividend and earned a “neutral” investment rating from Zacks. Here’s a quick roundup of the news that mattered for the apparel retailers that we cover.

Gap Inc – Disappointing August Results

Gap Inc, which is one of the biggest and strongest apparel retailers in the U.S., released its August sales results last week. The company stated that its net sales were flat as compared to the same month last year, but its comparable store sales declined by 2%. By brand, comparable store sales at Gap and Banana Republic fell by 6% and 2%, respectively, while they grew by 2% at Old Navy. ((Gap Inc. Reports August Sales Results, Gap Inc, Sept 4 2014)) Gap Inc’s customers have been reluctant to spend on its relatively expensive brands due to the prevailing economic uncertainty. However, they have shopped freely and regularly at its affordable brand, Old Navy. As the retailer’s results were worse than what the market expected, its stock fell by close to 5% on Friday.

In other news, Gap Inc unveiled plans to invest close to $96 million in its Fishkill distribution facility to enhance its Northeastern distribution network. This investment is likely to create more than 1,200 jobs, for which Empire State Development has decided to provide the retailer up to $12 million in tax credits. ^[1]

We estimate revenues of about $17 billion for Gap Inc in 2014, with earnings per share of $2.97, which is in line with the market consensus of $3.03-$2.85, compiled by Thomson Reuters. We currently have a $52 price estimate for Gap Inc, which is about 15% premium to the current market price.

Abercrombie & Fitch – New Collection

Abercrombie & Fitch launched a new online novelty A&F collection for men and women this past week. The collection features men’s shirts, beach shorts, polo tees, hoodies and jeans along with women’s pants, skirts, sweaters, short tees etc. All these products have been launched on abercrombiefitch24.com at competitive price points, and have drawn some customer attention so far. The company has even introduced special rewards for customers who shop at Abecrombie more than once. Some sources have revealed that the new collection has boosted the website’s sales meaningfully. ^[2] This is good news for Abercrombie, who recently decided to discontinue a bulk of its logo products by spring next year. Although some investors and analysts believe that reducing logo portfolio to almost nothing won’t revive the brand, a product overhaul isn’t a bad idea given that customers had shunned the brand’s basic products for more trendy apparel at Zara and Forever 21.

We estimate revenues of about $4.1 billion for Abercrombie in 2014, with earnings per share of $2.47, which is in line with the market consensus of $2.60-$2.18, compiled by Thomson Reuters. We currently have a $39 price estimate for Abercrombie & Fitch, which is roughly inline with the market price.

American Eagle Outfitters – Announces Quarterly Dividend

Last week, Pittsburgh based casual apparel retailer, American Eagle Outfitters, declared a regular quarterly cash dividend of $0.125 per share, marking its 41st consecutive quarterly dividend. The dividend will be payable on October 15, 2014 to all stockholders of record on October 1, 2014. ^[3] In other news, Zacks reaffirmed its neutral investment rating for American Eagle Outfitters, with a target price of $15.00 per share. Zacks’ analysts believe that, even though the company posted better-than-expected earnings in Q2, its rapidly declining comparable store sales is a big concern. ^[4] While American Eagle is looking at revive its growth through omni-channel development and international expansion, it simultaneously needs to address its merchandise issues effectively to facilitate a complete turnaround.

We currently have a $13.5 price estimate for American Eagle Outfitters, which is about 5% below the current market price.

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1. Gap Inc. tax deal puts focus on job creation, Poughkeepsie Journal, Sept 3 2014 [↩]
2. Online Abercrombie & Fitch Outlet Unveils All-New Men’s and Women’s Clothing Collection, Digital Journal, Sept 5 2014 [↩]
3. American Eagle Outfitters Declares A Regular Quarterly Dividend of $0.125 Per Share, American Eagle Outfitters, Sept 2 2014 [↩]
4. American Eagle Outfitters Earns “Neutral” Rating from Zacks, WKRB, Sept. 5 2014 [↩]