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Abercrombie Is Seen on the Recovery Road

NEW YORK (TheStreet) -- Wall Street is becoming increasingly optimistic on Abercrombie & Fitch (ANF - Get Report) as struggling mall retailers like it enter the back-to-school season.

"Teen retailers are fully set for [back-to-school] and are beginning the season with compelling and aggressive promotions, both in-store and online," Janney Capital Markets analyst Adrienne Tennant wrote in a research note on Monday. "In the teen space our top pick remains ANF, as new flows showcase target and trend-right merchandise and inventory levels look very clean." Tennant rates the company a "buy."

Like its teen retail competitors, American Eagle Outfitters (AEO) and Aeropostale (ARO), Abercrombie is faced with a backdrop of easing mall traffic, a shift in teen preference for cheaper fast-fashion, apparel alternatives as well as online shopping, and in Abercrombie's case a controversial leader resistant to changing consumer preferences. The New Albany, Ohio-based company has seen at least nine consecutive quarters of falling same-store sales.

That's expected to continue at least for the next two quarters despite improving somewhat. Abercrombie will report fiscal second-quarter results later this month. Same-store sales are expected to fall 4%, according to consensus estimates tallied by Thomson Reuters, compared to a decline of 10% in the second quarter of last year. For the third quarter, which will include the back-to-school shopping season, same-store sales for Abercrombie are expected to decline 2.3% vs. 14% last year.

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The stock is down 26% since it hit a 52-week intraday high of $52.61 one year ago. But Abercrombie shares have recaptured some of that loss. The stock closed up 2.7% to $39.44 on Monday.

Activist investor Engaged Capital got involved in the stock late last year pressuring the retailer to "reverse years of underperformance," starting with replacing Mike Jeffries, then its chairman and CEO.

Earlier this year, the company made a myriad of corporate governance changes under pressure from Engaged Capital. It stripped Jeffries of his chairman title (he's still CEO). Abercrombie also terminated its poison pill and replaced the majority of its 12-member board with independent directors, most of which have direct retail management experience. Abercrombie also created the position of Chief Operating Officer -- filled by Chief Financial Officer Jonathan Ramsden -- to help manage the "overall execution of the company's long-range strategic plan," it said in April.

Abercrombie has roughly 1,000 stores in the U.S. and internationally as part of its Abercrombie and Hollister brands.

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