Anyone riding the amazing rebound in Abercrombie & Fitch (ANF) stock this year might want to rethink that position. Surprisingly weak sales in ANF’s second quarter earnings report revealed the limits of the company’s comeback efforts, and that puts further upside in ANF stock into question.
ANF stock was up 35% for the year-to-date heading into the earnings report thanks to progress the troubled teen retailer made luring shoppers back to its stores. But that progress might have come to an abrupt end.
After all, it was around this time last year that the bottom fell out for Abercrombie & Fitch and ANF stock.
Marketing missteps, stiff competition from cheaper brands responding rapidly to changing fashion trends, and weak mall traffic had all been weighing on ANF’s business for a couple years. But it all came to a head when Abercrombie & Fitch suffered through a weak second-quarter earnings season last year, followed by disappointing back-to-school and holiday sales.
ANF stock tanked in late summer of 2013, sending shares down more than 30% YTD loss at the time.
ANF Stock Rebound Hits the Ceiling
ANF stock made a lot of progress clawing back those loses this year, but it might have hit the ceiling. Like last year, a bad second-quarter earnings report could be setting the stage for another round of weak back-to-school and holiday sales.
Abercrombie & Fitch said in its second-quarter earnings that revenue fell sharply, missing Wall Street estimates by a wide margin. Sales declined nearly 6% to $890.6 million in the second quarter, while analysts were looking for revenue of $909.8 million.
More worrisome is what happened to ANF’s same-store sales, which are considered to be a key measure of a retailer’s health. Companywide same-store sales tumbled 7%, led by a drop of 10% at the Hollister chain. The Street was looking for same-store sales to fall 4.1% for the total company, and less than 5% at Hollister.
ANF might have gotten away with, say, poor margins or a small miss on the bottom line in its second quarter earnings report. But the big-time sale shortfall shows that the company is still struggling to win customers. Fashion is fickle, mall traffic is soft, and ANF hasn’t been able to manage the challenges.
The crucial back-to-school selling season doesn’t exactly sound like a lifesaver, either. As CEO Mike Jeffries said in the earnings release:
“In a continued challenging environment, our sales for the second quarter were somewhat below plan, but we have seen modest improvement since the back-to-school floorset.”
Sure, “modest improvement” is better than “ongoing disaster,” but it’s hardly percolating with optimism.
ANF stock deserves the run it’s had for the year-to-date, seeing as management pulled the company up out of a death spiral. But that comeback is already fully reflected in the share price now.
Further upside in ANF stock depends on a sales turnaround … and right now, there’s no sign of that.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.