The 'Teenage Wasteland' Continues To Underperform

Wunderlich has reiterated its Hold rating and $21 price target on Abercrombie & Fitch Co. ANF following the second-quarter results that showed lack of traction in both the A&F and Hollister brands in addition to declining profitability trends.

"Despite management's depiction of newly defined, updated brand positioning efforts for both retailing segments, it remains clear to us that there are no operating trends on the horizon to offer any need for increased positivity on A&F," analyst Eric Beder wrote in a note.

Hollister segment's SSS dropped 2 percent, and the analyst sees little evidence results will trend positively over the balance of 2016. A&F segment continues to lag (effectively all) retailing peers. For the fourteenth straight quarter, the company's eponymous retailer posted year-over-year comparable sales declines.

"Though management blamed the -7.0 percent SSS decline on tourist-driven traffic headwinds, specifically in Flagship and tourist stores, we believe, in reality, the retailer's ongoing traffic declines are driven far more by market share losses and brand-specific consumer disinterest," Beder continued.

Related Link: Citi On Abercrombie & Fitch: "Out Of Sight, Out Of Mind?"

As such, Beder cut his third and fourth quarter comparable sales estimates to -4.0 percent and-3.0 percent, respectively, and slashed his third quarter EPS projection by $0.27. Despite maintaining its fourth quarter EPS projection of $1.09, Beder noted that the company will face some of the toughest comparable rates in the year-ago period observed in a number of years.

"Though we cannot blame management for attempting to aggressively shift the market positions of both the A&F and Hollister brands, we do not believe their efforts are enough to compete against the company's peers that have, at this point, definitively bifurcated from the direction of this company," Beder added.

Shares of Abercrombie & Fitch were down 1.05 percent on the day at time of writing, seen trading at $17.90.

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