As the specialty apparel sector faces more challenging year-over-year same-store sales comparisons for the second quarter, Abercrombie & Fitch Co. is on deck to report results this Wednesday — and it isn’t looking good, according to at least one analyst.
Eric Beder of Wunderlich Securities Inc. said in a research note this morning that consensus estimates for earnings per share pegged for a loss of 8 cents might be “too aggressive.” Still, he reiterated a “sell” rating on the stock with a $15 price target. Beder expects the retailer to post “dismal results.”
“Frankly, we believe there remain material structural issues at the company, which we believe have been further exacerbated by tourist traffic, [foreign currency exchange issues], and a domestic core customer who does not view the brand as highly relevant or desirable and is more than willing to wait for deeper discounts,” Beder said. “When combined with investor hopes of a turn, we believe there is further downside in the name and we remain highly negative on the [Abercrombie] story.”
However, retail analyst Neely Tamminga said the retailer is poised to benefit from strength in the denim market. The analyst upgraded the stock to “overweight” from “neutral.”
Beder sees the retailer still suffering from “poor fashion choices” as its namesake brand and Hollister struggle to “find relevancy.” And when it comes to the impact of a strong dollar, the company’s exposure to slowing tourist traffic in select markets is ongoing and troublesome. “We expect comps to be materially negative and for the company — once again — to be the only international player to not report same-store sales on a dollar basis, distorting comparisons,” he added.
For back-to-school, the analyst said trends are weak at the company. “We have seen declines in our pricing surveys and a relatively boring series of offerings from the company, which have been punctuated with material — 30 percent to 40 percent off the store — discounts,” Beder said. “Further, we note for fall that the company was introducing lower pricing internationally, which, in the near term, will further hurt returns.”
Regarding the retailer’s search for a chief executive officer, Beder doesn’t see an announcement until next year.
Abercrombie’s struggles occur while average second-quarter sales in the retail market are tepid. Overall, retailers face challenging year-over-year comparable-store sales comparisons, according to a tally by Thomson Reuters. Of the companies reporting so far, the aggregate mean for retail comps shows a 1.1 percent gain, which compares to a 1.5 percent increase in the same quarter last year, the research firm said.
By segment, discounters are trending lower in quarterly comps results with a 1.4 percent gain versus a 2.4 percent increase in the prior year. Department stores are declining 2.3 in the quarter versus a 0.8 percent gain last year.
In the specialty segment, comps are showing a 0.7 percent gain, which compares to a 1.1 percent increase last year. Within this segment, teen retailers are down 0.6 percent, which is on top of a 5.4 percent decline last year.
Investors applauded the executive changes. Shares jumped 5.9 percent to $27.05 in the midday session. The stock’s 52-week high is $30.10, and the low is $15.42.