& Fitch (ANF 21.60, -2.25, -9.43%) is trading lower today after reporting Q1 (Apr) results this
morning. Despite some nice upside on revenue and EPS, the same store comps are
being seen as a disappointment after robust comps in Q4 (Jan).
ANF is a retailer that operates 850+ stores of casual apparel/accessories for young women, men, and children. Its brands include Abercrombie & Fitch, abercrombie kids, and Hollister Co. The Abercrombie & Fitch brand is meant to embody American casual luxury. The Hollister brand is meant to capture the carefree spirit of an endless California summer for the teen market. abercrombie kids creates smart, playful apparel for children ages 3-14.
. After trading in the $32 range in March 2016, it went into a steady decline before bottoming out in July 2017 below $10. However, it has been in turnaround mode over the past couple of years, climbing back above $29 in April 2018, although it has pulled back since then.
The brand stumbled in recent years as it failed to change with the times. A big part of its problem is that young people's tastes are changing. They are opting for clothing that embraces individuality rather than the logo-centric clothing that ANF offers. Young people are also moving to trendier/cheaper alternatives (Forever 21 and H&M) so they can change fashions more quickly. Another big problem for ANF is online competition which has led to declines in mall traffic, an area where ANF has high exposure.
To combat these issues, ANF has been making some changes. CEO Michael Jeffries resigned in December 2014 and the company went several years without a CEO. In February 2017 ANF promoted Fran Horowitz from within to CEO. Ms. Horowitz had been instrumental in the turnaround of Hollister and has been working to reposition the Abercrombie & Fitch brand.
Turning to the Q1 (Apr) results, ANF reported a non-GAAP loss of $(0.56). This is a seasonally slow quarter for ANF so a loss was expected and the final number was actually a better than expected. Revenue rose 10.6% year/year to $730.9 mln, which also was better than expected.
In terms of same store comps, always important for retailers, ANF reported company-wide comps of +5% (Abercrombie +3%; Hollister +6%). That was down from +9% comps (Abercrombie +5%; Hollister +11%) in Q4 (Jan). For the full year FY18, ANF guides to comps of +2-4% which is roughly similar to prior guidance of up low single digits. It would be roughly in-line with FY17 comps of +3% (Abercrombie -2%, Hollister +8%) but up nicely from FY16 which came in at -5% (Abercrombie -11%; Hollister +0%).
In sum, the stock is trading lower despite the EPS and revenue upside. The problem seems to be the deceleration in comps in AprQ relative to JanQ. It's being viewed as a bit of a disappointment after such robust comps in Q4 (Jan). With that said, investors should understand that ANF is going to have some ups and downs in its turnaround, which tend to be bumpy rides. Overall, while AprQ was a bump in the road, the longer term trend is positive.
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