Another Tough Quarter In The Cards For Abercrombie & Fitch

Abercrombie & Fitch (NYSE:ANF) is set to report its fourth quarter and financial year (ended January 2017) results on March 2, 2017. This is the first earnings to be reported by the company since it named a new CEO, Fran Horowitz, who was being promoted from the position of marketing chief. However, it is expected to be a tough quarter for the company, with its earnings estimated to be sharply down from $1.08 per share in the year ago quarter, to $0.75 in the fourth quarter this time around. 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.

See our complete analysis for Abercrombie & Fitch

Foreign Currency To Negatively Impact Earnings

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 adverse 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.

Poor Traffic Trends To Continue

The company has suffered as a result of the slow traffic trends seen in its flagship and tourist location stores, which was witnessed 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 the company to cut costs and free up cash.

Competition From Fast-Fashion Retailers

Abercrombie 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?
• Sales Slump Continues 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
• Why Has Abercrombie’s Stock Price Fallen 25% In The Last Week?
• What Does Abercrombie’s Deal With Online Retailer Zalando Mean?
• Abercrombie & Fitch Plans Changes To Turn Their Business Around
• What Is Abercrombie & Fitch’s Fundamental Value Based On Expected 2015 Results?

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