The unraveling at Abercrombie & Fitch Co. (NYSE:ANF) continued apace in the second quarter as all-important comparable-store sales continued to collapse, sending ANF stock down sharply in early trading.
Abercrombie & Fitch blamed the sales weakness on disappoint results at its linchpin stores. Executive Chairman Arthur Martinez said in a statement:
“Our results for the quarter were largely in line with the expectations we set on last quarter’s earnings call. Flagship and tourist locations continued to account for the vast majority of the comparable sales decline as traffic remained a significant headwind … As we look to the rest of the year, we now expect flagship and tourist locations will continue to weigh on the business.”
All told, Abercrombie & Fitch doesn’t see comps improving at all for the rest of the year.
It’s pretty clear that ANF stock is making no progress in its battle for relevance. Mall traffic continues to slump and will likely never come back. At the same time, the brand simply can’t compete against so-called fast fashion nameplates such as Zara, H&M and Forever 21.
It also doesn’t help that millennials aren’t married to brands in the way previous generations were — or that ANF’s preppy fantasyland image seems laughably out of step with the times.
It should come as no surprise that Abercrombie offered cautious outlook, as it expects no let-up through the remainder of the year.
ANF Stock Sinks Hard
For the most recent quarter, Abercrombie & Fitch posted a net less of $13.1 million, or 19 cents a share, compared with $800,000, or a penny a share, last year. Analysts on average were looking for a loss of 20 cents a share, according to a survey by Thomson Reuters. A beat, but a small one.
Revenue fell 4% to $783.2 million for the quarter versus estimates for $783 million. Another beat, but another small one.
Although results were slightly better than the Wall Street forecast, the torrential downpour in same-store sales and downbeat outlook removed any doubt that the retailer would see any second-half strength — and, by extension, neither would ANF stock.
Same-store sales — an important retail industry measure of profitable sales growth — fell 4% in the quarter. That matched last quarter’s decline in sales at stores open at least a year, as well as the year-ago drop in comp sales. Hollister brand stores saw same-store sales from 2% year-over-year, while namesake Abercrombie locations posted a 7% drop.
Same-store sales weakness plagued both major brands to become a geographical and temporal killer for ANF:
Abercrombie & Fitch’s quarterly results and outlook are a hard dose of reality for anyone betting on any kind of second-half turnaround.
ANF stock actually rallied more than 10% over the past month heading into earnings. That looks silly in retrospect. Shares lost as much as 20% in the first half-hour of Tuesday’s session. The stock has now lost about a third of its value so far in 2016.
Abercrombie & Fitch has been a nice trading vehicle for speculators, but as an investment, it’s trash.
Demography, technology and fashion trends have pushed the brand past its event horizon.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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