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Struggling Abercrombie & Fitch (ANF) Doesn't Make the Cut

NEW YORK (TheStreet) -- Abercrombie & Fitch (ANF - Get Report) shed 11.5% to $33.90 after revising third-quarter estimates which showed the retailer worse for wear.

On Tuesday, the clothing retailer pre-announced revenue for the 13 weeks ended Nov. 2 of $1.03 billion, 12% lower than a year ago and $40 million less than analysts surveyed by Yahoo! Finance had expected. Total comparable-store sales was 14% lower, down 14% in the U.S. and 15% internationally.

For the full year, the Ohio-based company projected earnings of $1.50 a share, considerably lower than the $1.96 a share Thomson Reuters surveys averaged. The weak earnings forecast is a result of anticipated low single-digit sales growth in the fourth quarter and gross margin erosion as the company clears excess inventory.

"Our results for the third quarter reflect continued top-line challenges, with overall spending among younger consumers remaining weak. Until we have seen a clear trend improvement, we are continuing to take a cautious approach into the fourth quarter and are working to end the year with appropriate levels of fall carryover inventory," said CEO Mike Jefferies in a statement.

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Abercrombie also said it will close all 28 standalone Gilly Hicks stores by the end of the first-quarter 2014, and will incur a related one-time charge of between $90 million to $100 million in the third quarter this year.

During an analyst meeting Wednesday, executives said they will expand the sizes and fits of its clothing by spring in an attempt to attract increased sales. The company came under fire earlier this year when comments CEO Mike Jefferies made in 2006 resurfaced earlier this year, with Jefferies' saying the brand was "exclusionary" and only wanted to "market to cool, good-looking people". Currently, the store offers women's sizes no bigger than a large.

Rival retailers Aeropostale (ARO - Get Report) and American Eagle Outfitters (AEO - Get Report) were falling in sympathy. Aeropostale lost 7.8% to $8.48, while American Eagle dropped 2.9% to $14.81.

TheStreet Ratings team rates ABERCROMBIE & FITCH as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate ABERCROMBIE & FITCH (ANF) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, expanding profit margins and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for ABERCROMBIE & FITCH is currently very high, coming in at 70.32%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 1.20% trails the industry average.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 33.3% when compared to the same quarter one year ago, falling from $17.05 million to $11.37 million.
  • Net operating cash flow has significantly decreased to -$65.09 million or 421.89% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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