Shame on Abercrombie & Fitch

The market was braced for a less than sexy third quarter from Abercrombie & Fitch

ANF

. The short-of-consensus comparable store sales and cautious commentary pertaining to Europe was pre-announced and the stock plunged on November 3. However, as suggested to those who asked, the stock was to be avoided at all costs into earnings; there was no need to try and be a bottom picking hero. Where there is smoke there is always fire in retail names. An unexpected slowdown in sales triggers an unplanned for inventory bulge and sharper “percent off signs” to clear goods. Abercrombie is yet another example of the where there is smoke there is fire rule. CEO Mike Jeffries is signed for a couple more years in his current capacity, but I think it would be appropriate for him to step aside early not based only on this poorly delivered earnings report, but on an accumulation of missteps through the years. The stock is set to gap lower this morning. What you need to know:

Inventory up 33% year over year, part due to higher costs and planned new store openings. The company is now teed up to offer unplanned for promotions for the holidays to work through its inventory.
Average unit retail prices flat, completely the opposite outcome management expected (they were trying to push through big-time price increases).
Management looks to be deciding to invest in new stores globally right into an apparent downturn in its business.
Equity compensation higher in a quarter that was below plan. Huh?

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