Abercrombie & Fitch fell out of fashion

The fashion house will report its first-quarter numbers on Thursday 28 May, and is still struggling to stay trendy.

Retail shopper
Source: Bloomberg

Abercrombie & Fitch fell out of fashion a number of years ago and the preppy fad hasn’t swung back around for the company. The brand's success was at its peak pre-credit crisis and the share price hasn’t seen those heights since. As the retail sector emerged from the global financial crisis the company’s share price had a large recovery but it still ran out of steam in 2012, and this coincides with the time when the brand started losing popularity.

Abercrombie & Fitch has witnessed 13 consecutive quarters of falling revenue, and the outlook for the new financial year isn’t great as the company described the prospects for first-half of this year as ‘challenging’. Michael Jefferies stepped down as CEO in December, and has yet to be replaced. Given how much sales have declined over the past few years, and not to mention the 77% drop in share price since 2007, Abercrombie & Fitch is clearly taking its time in finding the right person for the job. While the company is leaderless and there are no major changes to the business it is difficult to see the share price rising in the short-term.

When Abercrombie & Fitch reveal its first-quarter numbers, the market is anticipating revenue of $729 million and a loss-per-share of 33 cents. The fourth-quarter numbers came in below market expectations; the revenue was $1.12 billion and the EPS was $1.15, while the market was anticipating $1.16 billion and $1.15 respectively. The company will report its full-year numbers in March, and traders are expecting revenue of $3.53 billion and EPS of 96 cents, and these forecasts equate to a 5.5% drop in revenue and 38% decline in EPS.

Investment banks are bullish on Abercrombie & Fitch, and out of the 36 ratings, seven are buys, 19 are holds, and 10 are sells. The average target price is $21.82, which 6.3% above the current price. Equity markets are very bullish on American Eagle Outfitters, and out of the 31 ratings, 16 are buys, 11 are holds, and four are sells. The average target price is $18.73, which is 14% above the current price.

The number of short positions being taken out on Abercrombie & Fitch has increased by 3.4% since the company announced its full-year numbers in February, and the short interest on the stock is at its highest level in 12 months.

The stock has been in a downward trend since 2011 and the downside target is $17. Any moves higher in the share will encounter resistance at $24. 

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