Abercrombie & Fitch Co. (NYSE:ANF) isn’t in as much trouble as investors generally thought it was in. It’s in much more trouble than that. Abercrombie’s fiscal third-quarter results were even worse than expected, with literally no bright spot for investors to take solace in. The 13% plunge in ANF stock says they’re indeed not taking any solace.
On Friday morning, the once-iconic retailer reported quarterly operating earnings of 2 cents per share on sales that sank more than 6% to $821.7 million. Stripping out the adverse impact of currency fluctuations, Abercrombie & Fitch still only earned 11 cents per share of ANF stock, down from 48 cents in the year-ago period. Both the top and bottom line missed expectations of $830.6 million and 21 cents per share, respectively.
Sames-store sales were down 6%.
Executive Chairman Arthur Martinez commented on the results:
“For A&F, flagship and tourist locations continued to be a major headwind. In addition, chain store traffic patterns remained negative. Weakness in A&F was compounded by underperformance of seasonal categories, which ultimately led to pressure on gross margin. While we anticipate the A&F business will remain challenging through the balance of the fiscal year, we continue to move aggressively to evolve the brand across all channels through significant changes in product, customer experience and marketing. A comprehensive set of strategic and operational actions is being taken by an experienced team under new leadership, and we expect to see benefits as our efforts gain traction.”
The phrase “comprehensive set of strategic and operational actions is being taken by an experienced team under new leadership” can largely be interpreted in another way:
“We’re throwing spaghetti on the wall, but so far, none of it has stuck.”
From Riches to Tatters
The story of Abercrombie & Fitch is, if nothing else, a dramatic one.
The retailer didn’t become the company we know today until the 1990s. Once that ball got rolling, though, the company became “the” name all teens wanted to wear, and the company all other retailers wanted to be like. ANF shareholders were amply rewarded too, once the company went public in 1996. Abercrombie rallied from its offering price of $16 then to a peak of $85.77 in 2007.
Shares were hit hard during the 2008 subprime meltdown, as most stocks did. Unlike most other stocks though, ANF stock never really got back on its feet. After rallying a bit through 2011, investors couldn’t help but notice earnings were shrinking. By 2014, sales began shrinking too.
The reasons were never entirely clear, but at least part of the de-popularization was increasingly (and cumulatively) offensive statements from now-former CEO Michael Jeffries. They took years to take a toll, but once the dam broke in 2013, there was no unbreaking it. Jeffries was ousted in late 2014.
Consumers never forgave Abercrombie … that, and/or consumers just don’t care for its look any longer. It is, after all, peddling the same basic fashions it was promoting two decades ago, while the world has moved on to other things. You can see the same trend plaguing other teen retailers like American Eagle Outfitters (NYSE:AEO) and Aeropostale Inc (OTCMKTS:AROPQ), the latter of which has filed for Chapter 11 bankruptcy protection.
Abercrombie & Fitch never replaced Jeffries though, opting to lead via a committee of industry veterans. So far, that approach hasn’t helped.
Looking Ahead for ANF Stock
To its credit, Abercrombie has overhauled its branding and message heading into the holiday shopping season. Chief merchandising officer Fran Horowitz described it by saying, “Rather than buying clothes that symbolize membership in an exclusive group, today’s consumer celebrates individuality and uniqueness. Our new brand reflects that confidence and independence of spirit as well as our own dedication to a more diverse and inclusive culture.”
And, as Martinez noted, things are being shaken up. It just doesn’t feel that different with fiscal Q3 results in hand.
A&F didn’t provide specific fourth-quarter guidance. It simply noted it expects comparable-store sales to be challenging, though improved (less bad) than Q3’s 6% decline in same-store sales. Analysts, however, are forecasting earnings of $1.07 per share on $1.07 billion in sales. That income would be a penny less than the company’s bottom line for the same quarter a year earlier. The revenue outlook suggests a sales decline of 4.2% year-over-year.
That translates — or did, anyway — a full-year profit of 46 cents per share, down from the prior year’s profit of $1.12 per share of ANF. The Q3 figures unveiled today will prompt adjustments lower. Projected corporate-wide revenue of $3.36 billion, down 4.4% from last year’s top line, will also be adjusted lower to reflect the third-quarter shortfall.
Next year’s projected profit is 72 cents per share. Those same analysts are calling for $3.38 billion in revenue.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
