Abercrombie & Fitch Posts Weak Q3 Sales, Guides Earnings

Shares of Abercrombie & Fitch Co. (ANF) have plunged 16.6% since the company announced its sales results and earnings outlook for the third quarter of 2014.

Battered by sluggish consumer traffic, especially in European stores, the company’s net sales for the quarter ended Nov 1, 2014, descended nearly 12% to $911.4 million, compared to the same period last year. Another factor accountable for weak sales was a fall in heavy logo products sales, due to the changing consumer trends.

Total comparable store sales (comps) for the same period, including direct-to-consumer sales, dropped 10% year over year. While U.S. and international comps declined 7% and 15% respectively, total direct-to-consumer comps rose 8%. Comps in the months of September and October remained extremely weak, when compared to August, leading to disappointing sales.

During the quarter, comps at the company’s Hollister brand also underperformed, being adversely impacted by soft European comps. Though jeans and dresses displayed positive trends, this was more than offset by weakness witnessed in the sales of tops, mainly male graphic tees and fleece.

Further, considering the intense promotional retail environment, this Zacks Rank #3 (Hold) company now expects gross margin for the quarter to remain modest, when compared to the same period last year. However, it expects to reduce the impact of weak sales and gross margin through its constant cost-control efforts.

Consequently, Abercrombie & Fitch envisions adjusted earnings per share for the third quarter in the 40–42 cents range. However, it remains mute on its full-year guidance, which was projected at $2.15–$2.35 a share, at the end of the previous quarter. The Zacks Consensus Estimate for the full year earnings stands at $2.33 per share, falling within the company’s guidance range.

Though management is disappointed with its third-quarter results, it continues to undertake strategic initiatives to bring about improvements in the fourth quarter and in the long run.

The company intends to remain focused on developing a branded structure, shutting down underperforming stores, investing in direct-to-consumer and Asian operations, enhancing marketing efforts, curtailing costs and realigning products, parallel to consumer preference. With these efforts underway, Abercrombie & Fitch is likely to boost results in the future.

Other better-ranked stocks in the retail sector include Citi Trends, Inc. (CTRN), L Brands, Inc. (LB) and Aeropostale, Inc. (ARO), each carrying a Zacks Rank #2 (Buy).
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