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Abercrombie & Fitch Earnings Preview: Still Looking for a Turnaround (ANF)

Abercrombie & Fitch Earnings Preview: Still Looking for a Turnaround ANF

Abercrombie & Fitch (NYSE: ANF), which faced an uproar this spring arising from controversial comments the CEO made about plus-sized women, is scheduled to report its second-quarter fiscal 2013 results Thursday, August 22, before the markets open.

Investors will be looking for the company to demonstrate that it has bounced back from the larger-than-expected net loss in the previous period. And they will have an eye on guidance, as other retailers have been lowering their outlooks for the rest of the year, claiming that consumers have grown more cautious in their spending.


Analysts on average predict Abercrombie will report that revenue for the quarter rose less than five percent year-over-year to just shy of $1 billion. Earnings of $0.28 per share are also in the consensus forecast. That would be up from a reported profit of $0.20 per share in the comparable quarter of last year, as well as the net loss of $0.09 per share in the first quarter.

Analysts seem less than confident, as the consensus earnings per share (EPS) estimate has slipped in the past 60 days from $0.31. However, before the per-share net loss in the first quarter, Abercrombie topped consensus EPS estimates in the previous three quarters.

The company attributed the disappointing first-quarter results in part to inventory issues, and it cut its outlook. Inventory management has been a problem for Abercrombie in the past few years. The share price fell about eight percent following the first-quarter report and has not fully recovered.

Looking ahead to the current quarter, the analysts' consensus forecast calls for sequential and year-over-year growth of both EPS and revenue. So far, the full-year forecast calls for EPS and revenues to be more than nine percent and marginally higher, respectively, relative to the previous year.

The Company

Abercrombie & Fitch is an American retailer that offers primarily casual wear for consumers less than 25 years of age at more than 1,000 stores in the United States and internationally. It also markets it apparel and accessories online. Its brands include Abercrombie & Fitch, abercrombie kids, Hollister and Gilly Hicks.

The company was founded in 1892, and its headquarters are in New Albany, Ohio. It is a component of the S&P 500, and it now has a market capitalization of less than $4 billion. Michael S. Jeffries has been chairman of the company since May 1998 and chief executive officer since February 1992.

Competitors include American Eagle Outfitters (NYSE: AEO), which is expected to report on Wednesday a year-over-year EPS and revenue decline for its fiscal second quarter, and Aeropostale (NYSE: ARO), from which analysts expect a net loss and a decline in sales, relative to a year ago, when it reports Thursday afternoon.

During the three months that ended in July, Abercrombie had a PR problem arising from controversial comments made by its CEO, it launched a college scholarship and it was investigated by a French human rights agency for its hiring practices.


Abercrombie has a long-term EPS growth forecast of about 16 percent, and its forward earnings multiple is less than its trailing price-to-earnings (P/E) ratio. The return on equity is about 13 percent, and in the most recent report, cash on hand had fallen about 45% in the past year. The dividend yield is near 1.7 percent.

The number of Abercrombie shares sold short, as of the July 31 settlement date, represents less than six percent of the float. That was the lowest short interest in at least a year, as the number of shares sold short generally has been dwindling since May. The days to cover was more than three.

Only a third of the 24 analysts surveyed by Thomson/First Call who follow the stock recommend buying shares, with just two of them rating the stock at Strong Buy. Yet, the analysts' mean price target, or where they expect the stock to go, is more than 21 percent higher than the current share price.

Shares have been trading mostly between $45 and $53 since before the beginning of the year. The 50-day and 200-day moving averages are headed toward what is known as a death cross. Over the past six months, the stock has outperformed the competitors mentioned above, but underperformed Gap (NYSE: GPS), Urban Outfitters (NASDAQ: URBN) and the S&P 500.


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