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Abercrombie's Weak Outlook Sends Shares to 3-Year Low

Thursday, 02 August 2012 05:02 PM

Shares of Abercrombie & Fitch Co., the teen retailer with more than 1,000 stores, plunged to a three-year low Thursday after cutting its annual forecast, citing an anticipated drop in same-store sales in the second half of 2012.

The New Albany, Ohio-based company fell 15 percent to $29.06 at the close in New York, the lowest since July 31, 2009. With Thursday’s drop, the biggest since November, the shares have declined 41 percent this year. Aeropostale Inc., Abercrombie’s smaller rival, plummeted 33 percent, the most in almost a decade, after reporting preliminary second-quarter results that were lower than previously forecast.

Abercrombie, which got 20 percent of sales from Europe in the year ended Jan. 28, has lost revenue as the region is roiled by a sovereign-debt crisis and amid tepid consumer sentiment at home. Full-year earnings per share will be $2.50 to $2.75, compared to a previous projection of $3.50 to $3.75, the company said Wednesday in a statement. Analysts had predicted an average of $3.36, according to data compiled by Bloomberg.

“We believe weakness is more than just the economy, and can no longer justify a ‘free pass’ on continued execution errors,” Erika Maschmeyer, an analyst with Robert W. Baird & Co. in Chicago, wrote in a note Wednesday, cutting her recommendation on the stock to neutral from outperform. The retailer’s merchandise isn’t resonating with customers and the brand is pressured by value-oriented competitors, she wrote.

Abercrombie is “cannibalizing” business at its namesake stores with its less expensive Hollister Co. brand, Jennifer Davis, an analyst at Lazard Capital Markets, said in a telephone interview Wednesday.

Abercrombie & Fitch, with 294 stores at the end of January, is “rooted in East Coast traditions and Ivy League heritage,” while Hollister, a more beach-friendly brand that represents the “fantasy of Southern California” had about 570 locations, according to the company’s annual report.

Abercrombie needs to do a better job at differentiating the two brands beyond a moose logo at its namesake stores and a seagull at Hollister, and has to bring more fashion newness to stores, said Davis, who doesn’t have a rating on the retailer.

Second-quarter revenue rose 4 percent to $951.4 million, trailing analysts’ predictions of $1 billion, according to data compiled by Bloomberg. Comparable store sales fell 5 percent in the U.S. and 26 percent internationally, and are expected to drop 10 percent in the second half of the year, the company said.


Abercrombie posted its first decline in same-store sales in more than two years in the three months ended April 28.

The company is paring back its international expansion plans and now expects to open 30 Hollister stores outside of the U.S. in fiscal 2012, down from about 40, according to yesterday’s statement. It’s also halting commitments to new flagship stores outside of its planned Shanghai location.

Aeropostale reported preliminary second-quarter profit that was break-even per share, down from earlier guidance of as much as 5 cents, citing reduced traffic in its stores. That compared to an average analyst estimate of 6 cents, according to data compiled by Bloomberg.

While overall sales rose 4 percent to $485.3 million, comparable sales were flat and same-store sales, excluding e- commerce, dropped 1 percent, the New York-based company said today in a statement. Analysts had predicted $497.2 million.

“We are clearly disappointed that our second quarter results fell below our initial expectations,” Chief Executive Officer Thomas Johnson said in the statement. “While we delivered a more cohesive fashion offering and continued to improve our sales per transactions, our overall store traffic was weaker than anticipated.”

‘Clearly Disappointed’

The stock dropped 33 percent to $13.08 at the close in New York, the biggest decline since October 2002. The shares erased their gain for the year, with a 14 percent loss through today.

Abercrombie’s report Wednesday came within an hour of American Eagle’s preliminary second-quarter profit report, where it cited stronger-than-expected sales.

American Eagle fell 2.2 percent to $19.89. The company, which operates more than 1,000 stores in North America, has gained 30 percent this year through today.

Second-quarter profit per share probably will be as much as 21 cents a share, more than an earlier forecast of 15 cents, the Pittsburgh-based company said yesterday in a statement. Revenue jumped 11 percent to $740 million from $669 million a year earlier. Analysts had estimated sales of $715 million, according data compiled by Bloomberg.

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Thursday, 02 August 2012 05:02 PM
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