Once best known for its risqué clothing catalogues and advertisements, Abercrombie & Fitch (ANF) may now be better known for its poor performance. Shares were bouncing higher on Wednesday, as investors piled into the stock on hopes that a robust holiday shopping season would lift its sagging fortunes.
Don't get suckered by the unrealistic optimism. You should sell, avoid or short ANF shares. They're toxic and heading even further down.
Abercrombie is scheduled to report third-quarter earnings on Friday. The average analyst expectation is that ANF will post earnings per share (EPS) of 22 cents in the third quarter, compared to 48 cents in the same quarter a year ago. Full-year EPS is slated at a paltry 47 cents, compared to $1.12 last year. That's hardly what you'd call earnings momentum.
Abercrombie & Fitch's stock performance this year has been dismal, amid a retailing resurgence and an overall bullish market. ANF's shares have plunged about 40% year to date, compared to a YTD gain of 5.2% for the SPDR S&P Retail ETF and a gain of more than 6% for the S&P 500.
Fickle young fashionistas, once enamored of Abercrombie's preppy clothing style, are abandoning the company's premium-priced offerings for "grungier," hipper and cheaper fare at up-and-coming stores such as Forever 21, Zara and H&M.
Not helping matters is fierce discount competition from Wal-Mart and e-commerce giant Amazon, where youngsters saddled with crippling student debt can find discount clothing, without the expensive Ivy League pretensions that once served Abercrombie so well.
Based in New Albany, Ohio, Abercrombie & Fitch operates 754 stores in the U.S. and 178 stores in Canada, Europe, Asia and the Middle East. As sales plummeted in recent years, the company jettisoned the eponymous logo that once made its clothing a coveted brand.
At the same time, the company sharply cut prices, but its clothes still cost more than those of popular discount operators such as Ross Stores. Ross has thrived and stolen ANF customers by forging an efficient supply chain that produces fashionable clothes at deeply discounted prices.
A slew of retail earnings reports are on the docket this week, including Wal-Mart, The Gap and Ross Stores on Thursday. All are expected to post respectable results or better. Shares of Target jumped on Wednesday, after it beat earnings expectations and raised its guidance.
The average analyst expectation is that total earnings for the S&P 500's retail sector will rise 5.4% in the third quarter on a year-over-year basis, while revenues are projected to increase 5.3%.
As the holiday shopping season begins in earnest and the retail sector surges, there are better places to invest your money than in struggling Abercrombie & Fitch. ANF is an aging hipster that will never get its mojo back.
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