Declining Tourism Weighed On Abercrombie's Q2 Results, Creating Positives For American Eagle Outfitters

Abercrombie & Fitch reported worse-than-expected earnings driven by weak tourism spending, which was mostly concentrated in the A&F brand. Also, the company missed key fashion trends in tops at both divisions, as it stayed on the boho bandwagon too long and did not transition to the popular off-shoulder styles.

"We see this as a positive read-through for AEO who has been on-trend in tops and continues to take share given the withdrawal of Aeropostale and PacSun," analyst John Morris wrote in a note.

Related Link: Abercrombie & Fitch Remains In Turnaround Mode

In addition, Morris said the company's guidance for the back half of the year implies continued weak traffic trends — primarily stemming from light tourism — and assumes higher marketing spend that in turn would hit operating margin.

However, the positives include management expectations for lower AUCs, higher AUR and a correction to its miss in tops.

That said, Morris maintains his Market Perform rating and cut his price target by $1 to $19. The analyst also trimmed his 2016 EPS estimate to $0.61 from $0.71 and 2017 estimate to $0.91 from $1.03.

"While we believe that there is a turnaround story for the company, we remain on the sidelines for now with our limited visibility on the pace of the core A&F division turnaround," Morris added.

At time of writing, shares of Abercrombie & Fitch fell 1.38 percent to $17.84, while shares of American Eagle were slightly up on the day, seen trading at $18.63 (up 0.32 percent).

Full ratings data available on Benzinga Pro.