Abercrombie & Fitch Store Checks Show Weak Prospects For Sales Growth

Recent checks by Argus on Abercrombie & Fitch Co. ANF stores suggest there is weak prospects for profitable sales growth amid intense competition and falling foot traffic at shopping malls.

"Until comps recover, without significantly sacrificing gross margin, we are likely to remain neutral on ANF shares," analyst Christopher Graja wrote in a note.

Graja trimmed his FY17 earnings estimate to $0.85 a share from $1.25 a share after weaker-than-expected results in the first quarter and a weaker sales outlook for the rest of the year. For the second quarter, the analyst now expects a loss of $0.19 per share versus prior estimate of a profit of approximately $0.10 per share.

"We believe 76-year-old Chairman Arthur Martinez faces one of the biggest challenges of his storied career in reviving the teen apparel chain which recently earned the title of America's most hated retailer, according to a February 2016 article by Fortune," Graja highlighted.

The analyst noted it would take time for the retailer to recapture market share and to shed its reputation for high prices and exclusivity.

The analyst said he would be watching closely the conversion and traffic increases. Graja recalled that despite weak first quarter results, Martinez seemed pleased with the improvement in conversion in FY16.

Graja expects about 10 percent earnings growth over the next five years, which reflects a couple years of outsized, turnaround growth and a few years of growth in the mid-single digits.

"We would expect most of the growth in the Abercrombie brands to come from overseas, with some of the remaining growth coming from Hollister and from share repurchases," Graja added.