Credit has to be given where it’s due. Abercrombie & Fitch Co. (NYSE:ANF), which many investors had left for dead, is showing a glimmer of hope. ANF stock is up 33% since posting a third-quarter earnings beat back on November 17th. Since July’s low, shares are up 89%.
It’s an exciting turn of events to be sure. While challenges remain—some internal and some external—for at least one quarter anyway, Abercrombie & Fitch was able to stop the bleeding.
The market rewarded the results.
On the other hand (and not to be a proverbial wet blanket), but one good quarter doesn’t make a trend. And, until the stock clears a key technical hurdle, investors would be wise to remain suspicious.
The good news is, there are a couple of subtle differences with A&F now that work in its favor.
The Chart is the Key
As William White pointed out in mid-November, last quarter’s top line of $859 million was up 5% on a year-over basis, while earnings of 30 cents per share not only left the year-ago bottom line of two cents in the dust, it easily topped estimates of only 22 cents.
It’s the most hope the struggling retailer has dished out in quite some time. Just for the record, however, we’ve seen the stock respond to seemingly-good news in this manner before, but to no long-term avail.
For investors to believe the Abercrombie & Fitch Co. turnaround effort is for real, ANF stock is going to have to move above a technical ceiling that extends all the way back to 2011. Take a look.
There is something different about this setup that we’ve not seen with previous pullbacks from this resistance line. That is, the depth of the selloff that played out over the course of 2016 was much greater than the previous pullbacks from the aforementioned ceiling.
This suggests there may have been something capitulatory about the move (which would certainly jibe with the grim headlines seen since the early part of last year).
Only time will really tell if we can and should place long-term trust in the rebound effort we’ve seen so far. This is a noteworthy development though.
Bottom Line for ANF Stock
While it would be easy for a pessimist (or even an unbiased observer) to look at the above chart and just chalk it up to more of the same ebb and flow we’ve seen for years now, there may be more going on here. Abercrombie & Fitch may actually be on the mend.
As evidence of this possibility, know that the YouGov BrandIndex score for Abercrombie shows that consumers between the ages of 18 and 34 are more likely to recommend the retailer now than they’ve been likely to at any point in the past ten years.
It’s exactly not a game-changing development. While sales and earnings were both up last quarter as well as for the second quarter of the year, the retailer has not yet decisively turned the corner; “less bad” or “the same: is not the same as “good.”
Nevertheless, it’s an interesting turn of events, as investors collectively see the future much better than they individually realize. If ANF stock can get above the major resistance line discussed above, it may well happen around the same time the company’s turnaround effort convincingly take hold.
That’s the long way of saying at the very least you can put Abercrombie & Fitch Co. back on your watchlist.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
