Abercrombie & Fitch Co.ANF saw its largest single-day rally in over a year's time with shares rising 13.5% yesterday after the company raised hopes for improved comparable store sales (comps) performance, going forward.
Though the company reported dismal top-and bottom-line results for first-quarter fiscal 2015, management is encouraged by its comps performance that showed sequential improvement in some parts of its business, particularly at the Hollister brand. Further, the company is witnessing improvement in its overall May comps, which is expected to lead to sequential comps growth in the second quarter and the second half of fiscal 2015.
Abercrombie & Fitch has been struggling with a negative comps trend for about 12 quarters mainly due to the fading popularity of the brand among teenagers. Moreover, the company has been losing its charm to the rising popularity of fast-fashion retailers, like H&M and Forever 21, among its target customers.
This was further evident from the company's dismal first-quarter fiscal 2015 results, wherein adjusted loss of 53 cents per share was wider than the Zacks Consensus Estimate of a loss of 34 cents and the year-ago loss of 17 cents. Management stated that the first quarter was a tough one as the company is in the early stages of its initiatives adopted to improve business. Foreign currency headwinds also hurt results.
Net sales of this Zacks Rank #5 (Strong Sell) company slumped about 14% year over year to $709.4 million and fell short of the Zacks Consensus Estimate of $734 million, mainly impacted by adverse currency headwinds and an 8% decline in comps. Brand-wise, Abercrombie's and Hollister's comparable sales descended 9% and 6%, respectively.
However, Abercrombie & Fitch is implementing several steps to enhance its business, including improving its leadership team and organizational structure; optimizing store fleet by introducing stores in high-performing markets, while closing the underperforming ones; developing omni-channel capacities and focusing on key merchandise and design processes.
While Abercrombie & Fitch believes these initiatives will not turnaround its performance overnight, it expects these efforts to revive its iconic brands and direct the company to notable and sustained growth.
Stocks to Consider
Better-ranked stocks in the same industry include American Eagle Outfitters Inc. AEO , with a Zacks Rank #1 (Strong Buy); and Bebe Stores Inc. BEBE and Citi Trends Inc. CTRN , each carrying a Zacks Rank #2 (Buy).
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