Having spent quality time on a college campus recently, I was not surprised that Abercrombie & Fitch (NYSE:ANF) posted some disappointing revenue numbers on Aug 30, leading ANF stock to plummet.
While I did meet young women who dressed well — usually exchange students in the clothes of their homelands — the Americans I met were often slobs. This was universally true for the men, and often true for the women as well.
The A&F brand is geared to making clothes a spending priority among young people, and they’re just not. It is foolish to blame management for this reality, but you don’t have to speculate on ANF stock.
The company reported a summer quarter loss of $3.9 million, 6 cents per share, on revenue of $842 million, compared with a loss of $15.5 million, 23 cents per share, and revenue of $779 million a year ago.
Overall, not bad. But the top line was $3 million below consensus estimates and same-store sales also missed, so the stock dropped 11%.
Big Promises Unmet With ANF Stock
A lot of the roughly 13% fall for the stock represented profit taking. A&F has been a spectacular stock to be in over the last year, rising 100%. This allowed former chairman Arthur Martinez to go out on a high in January, raising estimates beyond what the market could bear.
It’s a tribute to the work of CEO Fran Horowitz, who got past the upheaval of sexualizing models (former CEO Mike Jeffries’ infamously suggested the company only wanted “cool” and “attractive” customers) after taking the reins in 2017. She has refocused the company on good works and youthful idealism.
Horowitz has also been a good operator, keeping the company in the black and (until now) beating earnings estimates, usually handsomely. But those estimates had gotten ahead of themselves. The “whisper number” going into this earnings release was for a break-even summer quarter and revenue of $847 million.
The biggest problem for analysts was that same store sales were up only 3% from a year ago, not the 3.7% expected.
Going Down, Market?
Some analysts are focused on A&F’s lower profile among affluent teens, but that may have been Horowitz’ plan all along. Cool kids are a minority in any school. The new image fits middle-income teens and young workers who are no longer wearing suits. Horowitz wants A&F to be less of a fashion brand and more of a clothing essentials brand, knowing that fashions change on a dime while you always need a good shirt.
A&F’s volatility, as a stock, is partly tied to the company’s size. While the company is very well-known and has 40,000 sales associates, annual sales are just $3.5 billion, and the company’s market cap is $1.6 billion, with under 68 million shares outstanding. That means a small number of large trades can make the stock price move.
The Bottom Line
Horowitz’ plan has been to make A&F, and its Hollister brand, more stable … and she has succeeded.
But stability has a price. That price is low volatility. Sustainability isn’t as exciting as fashion, and isn’t prone to the same wild swings in sales or profits. Abercrombie & Fitch has become a solid, stable company again, boring in the nicest possible way.
Those who seek pizzazz with their investments should probably look elsewhere.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.