Abercrombie & Fitch Remains In Turnaround Mode

Following the Q2 miss reported and guidance cut by Abercrombie & Fitch Co. ANF, Baird’s Mark R. Altschwager believes the company “remains in turnaround mode amid a difficult macro/retail environment.”

Altschwager maintains a Neutral rating on the company, while lowering the price target from $23 to $21.

Q2 Miss

Abercrombie & Fitch reported its Q2 loss per share at $0.25, missing the consensus, due to weaker than anticipated gross margins, in-line sales and comps and traffic headwinds.

Although comp trends were in line with expectations, they were mixed sequentially across geographies.

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Total sales declined 4.2 percent on comps of -4 percent. EBIT margin declined 420 bps, while inventory/store decline 2.5 percent.

“Management now expects results to remain challenging in 2H16,” Altschwager mentioned.

Guidance

With marketing initiatives around new brand positions and new prices intensifying, management believes trends might improve with time, although there were no near-term catalysts that could reverse the traffic declines in tourist locations.

The F2016 comp and gross margin guidance were lowered, partially offset by cost savings.

“While management has made progress on controllable initiatives, we believe any meaningful inflection will take time given leadership changes, new brand positions, and updated pricing amid an environment with persistent headwinds,” the analyst added.

The F2016 EPS estimate has been reduced to reflect more conservative top line trends during H2.

At time of writing, shares were down 1.44 percent at $17.83.

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