Wall Street Sees Tough Times Ahead For Abercrombie & Fitch After Disappointing Q4 Earnings

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Abercrombie & Fitch Co. ANF released mixed fourth quarter earnings on Wednesday. While EPS of $1.15 was in line with analyst expectations, revenue fell 13.8 percent year-over-year to $1.12 billion, missing consensus estimates of $1.17 billion.

Shares traded recently at $19.98, down 1.4 percent.

Five Wall Street firms weighed in on Abercrombie.

FBR & Co: Outperform with a $24.00 price target.

"Despite potentially lackluster current trends—near-term int'l/FX pressure, adverse weather affecting traffic, logo reduction headwinds—we think that int'l pricing adjustments, lapping logo reduction, improving fashion, benefits from lower cotton prices, potential increases in AUR with inventory reductions, and supply chain/omni-channel (bulk of benefits accrue in 2H15) create the potential for stabilization in '15. While ANF is in transition mode, we believe its longer-term value continues to be compelling, with considerable business leverage once it is able to get things back on track."

BMO Capital Markets: Market Perform with a $20.00 price target.

"We remain concerned around the slowdown in Europe, where traffic challenges and the need to retool pricing are starting to mirror the situation in the U.S. 2014 international store operating margins run at a rate of 24.3% (versus 14.7% in the U.S.) with sales per square foot more than double U.S. levels but down around 40% over the past two years. Thus, we see potential for margins to continue to compress if efforts to spur sales don't yield immediate results. With the major expense cuts already behind the company, top-line improvement becomes even more important."

Morgan Stanley: Underweight with a $14.00 price target.

"While Abercrombie will benefit from average unit cost reductions, we see downside risk to our +40 bps y/y estimate but are maintaining our estimate here for now given management guidance for a flat to slightly higher GM rate...With a consistently weakening international top-line, we worry Abercrombie could see even greater deleverage on high international fixed expenses (costly 20-year flagship leases) if they are unable to stem the sales decline."

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Bank of America: Underperform with a $17.00 price target.

"We remain concerned about Abercrombie's decelerating international comp and margin trends and limited incremental cost savings opportunity... Unfavorable FX will also weigh on international margins, and would have posed a $60 million EBIT headwind in F2014 at current rates. We expect the international margin to continue to decline towards domestic levels."

UBS: Neutral with a $21.00 price target.

"We do not expect material product improvement until at least BTS, and think it will be tough to wean customers off aggressive promotional levels without an improvement in product...We continue to be concerned about the impact of ANF's brand positioning, both in the US and internationally. The product assortment is increasingly skewing to be more fashion-forward (away from logo), with sharper opening price points. We worry that these changes will actually make Abercrombie less differentiated vs global fast-fashion retailers, who are much more nimble at chasing into trends."

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Posted In: Analyst ColorPrice TargetAnalyst RatingsTrading IdeasBank of AmericaBMO CapitalFBR & Co.Morgan StanleyUBS
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