What Has Led To Abercrombie’s Stock’s Wretched Performance?

Shares of retailer Abercrombie & Fitch (NYSE:ANF) fell to a 52-week low of $11.53 in the very first trading session of 2017. This encapsulates the miserable performance of the stock for a while now, reflecting the poor sales and earnings generated by the company. During 2016, the stock price plummeted 56% to end the year at $12, underperforming Zacks categorized Retail – Apparel/Shoe industry’s decline of nearly 13%. It has further fallen to below $12 as of the current writing.

See our complete analysis for Abercrombie & Fitch

One of the major factors working against the company is its significant international presence, exposing it to various foreign currency risks. For a while now, foreign currency headwinds have hurt the company’s earnings; in the third quarter (ended October 2016), foreign currency adversely impacted sales by approximately $8 million. The company expects a continued negative impact on the sales and operating income in the fourth quarter as well, as the tourism issues and the traffic trends will not abate. The company thinks these issues are arising as a result of safety and security concerns, as well as currency devaluation.

The company also suffers due to the slow traffic trends seen in its flagship and tourist locations stores, which was seen in the third quarter as well. Given this trend, the company has resorted to closing down a number of its stores. For FY 2016 (ended January 2017), the company expects to close 50 stores in the US through natural lease expirations. The company also stated that approximately 50% of its 745 stores in the US are up for renewal over the next 18 months, giving the management the opportunity to continue with the store reductions. Over the last six years, the company has shuttered 350 stores, allowing it to cut costs and free up cash.

Another factor that has resulted in the considerable decline of the stock has been its consistency in missing the consensus estimates. The third quarter miss marked the third consecutive quarter when the company missed analysts’ estimates for its earnings.

Abercrombie’s bleak outlook for the fourth quarter also does not inspire any confidence. The company expects the comparable sales to remain challenging, with a modest improvement over the third quarter. The gross margin rate has also been guided downwards, from the non-GAAP rate 60.7% achieved last year, driven by lower average unit retail, partially offset by lower average unit costs.

Besides the above factors, the company also faces competition from fast-fashion retailers, such as Zara and H&M. These brands are able to move styles from the runway to the stores within weeks, constantly evolving their assortment and keeping their products fresh. Historically, retailers placed their bets on fashion a year in advance, and since they marked their products higher, there was room for markdowns. However, now companies have realized that by cutting the time down to three to six months, they don’t need to price the items higher. Abercrombie is working on its speed to market, and in this regard, it augmented its fulfillment capabilities to the West Coast with a third-party facility, to better service customers in that region of the country.

Have more questions about Abercrombie & Fitch? See the links below:

• Part 2: Is There A Way Out Of The Rut For Brick And Mortar Stores
• Retailing Conundrum, Part 1: Is There A Way Out Of The Rut For Brick And Mortar Stores?
• How Has Abercrombie Performed In 2016?
• Sales Slump Continues For Abercrombie
• A Decline In Sales Is Expected To Continue In The Third Quarter For Abercrombie
• Abercrombie Revamps Brand To Attract Customers
• Abercrombie & Fitch’s Direct Business Is Its Only Beacon Of Hope
• Abercrombie & Fitch Looks To The Middle East For Growth
• How Will Abercrombie & Fitch Perform In 2016?
• Why Has Abercrombie’s Stock Price Fallen 25% In The Last Week?
• Bleak Outlook Causes Abercrombie & Fitch’s Stock To Plummet 20%
• How Will Abercrombie & Fitch Perform In Q2 2016?
• What Does Abercrombie’s Deal With Online Retailer Zalando Mean?
• How Has Abercrombie & Fitch’s Revenue By Geography Changed Over The Last Three Years?
• Abercrombie & Fitch Plans Changes To Turn Their Business Around
• Who Relies On Debt More; Gap Inc or Abercrombie & Fitch?
• What Is Abercrombie & Fitch’s Revenue & Earnings Breakdown In Terms of Different Operating Segments?
• What Is Abercrombie & Fitch’s Fundamental Value Based On Expected 2015 Results?
• How Has Abercrombie & Fitch’s Revenue Composition Changed In The Last Five Years?
• By How Much have Abercrombie & Fitch’s Revenues & Earnings Grown In The Last Five Years?

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