Stock of the day 20/08/2015 – Abercrombie & Fitch Co

Can Abercrombie & Fitch end the Abercrombie & Stock-Ditch that has been constant throughout 2015 with its second quarter results on Wednesday?

After opening the year at $28.72 the clothing company has seen a near uninterrupted decline in the last 8 months, culminating in a 6 and a half year low of $17.31 on August 19th; it is at a current trading price of $17.55 (IT-Finance.com, 20/08/2015).


(Source: IT-Finance.com 20/08/2015)

So what is behind its perpetual plunge? Well, on the figures front things haven’t looked good for a while; its fourth quarter results at the start of March caused a near 16% fall from $24 to $20 after the company posted a 14% drop in net sales to $1.12 billion, below the $1.17 billion expected, a drop prompted by a 10% collapse in its comparable store sales.

A mini-recovery across the rest of March, April and most of May was soon ended with Abercrombie’s first quarter earnings release, a release that saw total sales fall by 14% year-on-year to $709 million, causing its losses to nearly triple to $63.2 million. After these results the stock managed to bounce back above $20 once again, before a loss filled June and July eventually led to the aforementioned 6 and a half year lows in August.

This isn’t to say the company hasn’t been desperately trying to stop its suffering. It’s reduced the once brand-defining, but now deeply unpopular, prominence of its logo on most of its clothing, whilst also brightening up the dark (read dingy and unwelcoming) shopping atmosphere its stores were known for. Yet it is suffering the same issues as that other American clothing legacy, Gap; both are losing customers to cheaper and more on-trend stores like H&M and Forever 21.

Abercrombie has been combatting the former by reducing its prices; the latter issue, however, is a much more difficult proposition to fix. Its most recent line of clothes has drawn criticism for being similar to what is on offer at H&M and Forever 21, but for nearly double the price, whilst also being accused for offering items eerily similar to those at Lululemon.

The company appears to be caught in a costly transitional phase, stuck between trying to escape the associations of its past whilst trying, and failing, to emulate the success of its rivals. Abercrombie will be hoping that the appointment of a new head of womenswear in the shape of Kristina Szasz (nabbed from her design director for denim role at Tommy Hilfiger and Karl Lagerfeld) can help give its brand more definition, and comes after a long line of new senior hires in its men’s and children’s divisions. Worryingly, however, the company is still looking for a new CEO after the odious Mike Jeffries stepped down last December.

Ahead of its second quarter results analysts have given Abercrombie & Fitch a consensus rating of ‘Hold’ with an average target price of $22.70.