Abercrombie & Fitch Is In Troubled Waters: Can It Tide Over?

Abercrombie & Fitch Co. ANF operates as a specialty retailer of premium, high-quality casual apparels, extensively relying on its unique in-store experience as well as its line-up of leading product labels – Abercrombie & Fitch, abercrombie kids and Hollister – in order to drive growth.

However, the company seems to be in troubled waters as is evident from the following factors.

Abercrombie posted dismal third-quarter fiscal 2014 results, wherein both top and bottom lines declined year over year. The company's sales declined in the recent quarter due to soft store traffic, particularly in Europe, and continued weakness in its Hollister brand. Another factor accountable for weak sales was a fall in heavy logo products' sales due to changing consumer trends.

Not only did the company deliver a disappointing quarter, but it also warned of difficult conditions through the fourth quarter and the holiday season, anticipating continued weakness in its top line. This led Abercrombie to lower its earnings forecast for fiscal 2014.

Further, the company's popularity among teenagers has faded since the 2008 recession, leading youngsters to switch to cheaper options. Moreover, the company lost its charm with the increasing popularity of fast-fashion retailers like H&M and Forever 21 among its target customers. This ultimately resulted in a decline in comparable-store sales for 11 straight quarters.

Additionally, a significant portion of Abercrombie's merchandise is manufactured in countries outside the U.S and over a quarter of the company's total revenue comes from overseas operations. Consequently, it is exposed to foreign, political, social and economic risks. An adverse movement in foreign currency exchange rates can also dent its operational performance.

The company's underperformance also led to the retirement of its Chief Executive Officer (“CEO”), Mike Jeffries, from all positions, under immense pressure from activist investors who demanded new leadership.

Abercrombie & Fitch currently carries a Zacks Rank #5 (Strong Sell).

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