Abercrombie & Fitch Somehow Widens Loss

by Dan Burrows | May 29, 2014 3:10 pm

Abercrombie & Fitch (ANF[1]) makes losing money look cool. Shares jumped in early trading Thursday after the troubled teen retailer beat Wall Street expectations with a narrow-than-forecast loss.

Too bad it won’t last.

Specialty retailers like Abercrombie are having an especially hard time with the soft retail environment. True, weak consumer spending is hurting everyone from Wal-Mart (WMT[2]) to McDonald’s (MCD[3]), but teen retailers like Abercrombie & Fitch and Aeropostale (ARO[4]) are the ones reeling with loses and disappearing market caps.

Indeed, Abercrombie stock has lost 26% over the last 52 weeks. (ARO is off 73% and may be flirting with bankruptcy protection.)

Worst of all is that it isn’t clear how much Abercrombie and the others can fight back against the economic forces weighing them down.

As we’ve written before, sluggish employment growth (most of which is in low-paid jobs) and stagnant wages have robbed consumers of much of their discretionary income[5]. They’re less likely to buy on credit after the financial crisis blew so many of them up, and dipping into savings can only go so far.

The weak recovery is even worse for teen retailers like Abercrombie & Fitch because the youth unemployment rate is so much higher[6] than the main figure. The unemployment rate for people ages 16 to 17 years is 22%. The overall rate is 6.3%.

However, the slow pace of hiring is just one reason for Abercrombie’s troubles.

News flash: Teens are fickle. Retailers have to respond to changing fashion trends almost immediately, making inventory management a huge challenge. Companies like H&M and Uniqlo are much quicker at stocking the latest fashions, offering lower prices, too. That helps them steal sales from U.S. teen retailers.

The bottom line is that’s it’s been impossible for Abercrombie & Fitch to save its bottom line.

Abercrombie & Fitch Losses Abound

For the most recent quarter, Abercrombie & Fitch lost $23.7 million, or 32 cents per share. That was much wider than last year’s loss of $7.2 million. However, after excluding charges — as analysts do — the loss came to 17 cents per share, beating Street estimates by 2 cents.

Sales were likewise a bit brighter than analysts forecast. Revenue fell 1.9% to $822.4 million, whereas the Street was looking for $798 million.

The year-over-year numbers show that business is getting worse, but not to the extent analysts were modeling. That’s the reason for the pop in Abercrombie stock Thursday morning.

Of course, losing money isn’t exactly a sustainable business plan. The only reason to own Abercrombie & Fitch stock is for a bet on a turnaround. As we saw with Best Buy (BBY) last year — and J.C. Penney (JCP[7]) since early February — even small progress on a turnaround plan can send a stock soaring.

That makes Abercrombie stock suitable for only a small subset of investors — those with strong appetites for risk.

But most turnaround don’t turn. A bet on Abercrombie & Fitch is a long shot at this point. For most investors, ANF is a sell.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2014/05/abercrombie-fitch-anf-stock-sell/

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