Why The Only Winner From Abercrombie's Dismal Q3 Could Be American Eagle Outfitter

Before the market open last Friday Abercrombie & Fitch Co. ANF reported Q3 results that missed both top- and bottom-line estimates (EPS $0.02 vs. est. $0.21; rev. $821.73 million vs. est. $830.6.0) The market responded and share price dropped by around 12 percent in trading over the day.

Analyst's Take

After the disappointing report, BMO Capital Markets analyst John Morris reiterated a Market Perform rating for the clothing retailer and lowered his price target from $18 to $15.

The analyst highlighted further decelerated comps, which were down 14 percent in Q3 (with Hollister improving slightly,) a less-than-positive analysis of the company's marketing campaign and an inability to “gain traction with the older millennial consumer that shunned the retailer years ago.”

Implications For The Competition

American Eagle Outfitters AEO is expected to report Q3 results before the market open on November 30. The apparel competitor is expected to report EPS of $0.41 and revenue of $940.94 million.

The improving comp trends Abercrombie & Fitch saw with Hollister “could serve as a positive read through” for American Eagle, according to the analyst. Additionally, Morris noted that American Eagle should benefit from an on-trend category assortment

At the time of writing, shares of Abercrombie & Fitch were trading up 1.64 percent at $14.86; shares of American Eagle were trading slightly up at $18.15.