On Aug 28, we downgraded our recommendation on specialty
Abercrombie & Fitch Co.
) to Underperform based on the company's dismal second-quarter
fiscal 2013 results.
Why the Downgrade?
Estimates for Abercrombie have been declining ever since it
reported second-quarter results on Aug 22. Abercrombie's revenues
as well as earnings per share of $945.7 million and 16 cents
missed the Zacks Consensus Estimates of $998 million and 28
Following the results, the Zacks Consensus Estimates for fiscal
2013 and 2014 fell 30.8% and 18.7% to $2.22 and $3.22,
respectively. With the Zacks Consensus Estimates for both 2013
and 2014 going down, the company now has a Zacks Rank #5 (Strong
Causes of Concern
Negative comparable store sales remain a major concern for
Abercrombie. The company's comps performance depicts a downward
trend, with disappointing results for the trailing 6 quarters.
Moreover, Abercrombie is expecting comps to fall marginally in
Based on assumption of lower comps in the third quarter,
Abercrombie projected third-quarter 2013 earnings guidance range
to be 40-45 cents per share. Given the aforementioned facts, we
remain apprehensive about the company's future comps performance.
ABERCROMBIE (ANF): Free Stock Analysis Report
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Moreover, there are challenges on the macroeconomic front. The
apparel retail industry is consumer-driven and hence, very
sensitive to the health of the economy. Spending on apparel and
accessories is heavily dependent on the personal disposable
income of consumers. The current macroeconomic challenges, such
as high household debt and unemployment may restrain consumers'
spending on these items.
Given the second-quarter performance and Abercrombie's
conservative outlook, we do not see any significant catalyst that
could drive the shares in the near term. With the company failing
to provide any guidance beyond the third quarter due to lower
traffic, the Zacks Consensus Estimate for the third quarter has
fallen 55.7% to 47 cents.
Other Retail Stocks Worth Consideration
While we prefer to avoid Abercrombie until signs of improvement
in the company's performance, other retail stocks worth a look
Green Mountain Coffee Roasters, Inc.
Citi Trends, Inc.
). All these carry a Zacks Rank #1 (Strong Buy).