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Abercrombie (ANF) Denies Sale Transaction, Stock Plunges 21%

Shares of Abercrombie & Fitch Co. ANF have fallen nearly 21%, after talks of selling itself were suspended by the company. This struggling fashion retailer revealed that it will continue to work on its strategic plans instead, in a bid to return to the growth trajectory.  

In May, this New Albany, OH-based company conveyed that it was in discussion with several parties including specialty retailer American Eagle Outfitters, Inc. AEO, to potentially sell itself. However, after a detailed review of all the relevant factors, it has now concluded that aggressively pursuing the previously stated strategic initiatives would work best for the company and its shareholders.

Abercrombie remains encouraged by its solid comparable sales (comps) performance at the Hollister brand and robust direct-to-customer sales. Moreover, its robust strategies like capital investments, cost saving efforts, loyalty and marketing programs are gaining traction. Also, it is focusing on reviving brands, enhancing performance and returning to profitable growth. In fact, Abercrombie has been putting in due effort to stay in business by expanding its international operations.

Going forward, the company remains optimistic about its leadership team and organizational structure. Remodeling of stores and improving assortments to meet changing trends and demands; developing omni-channel capacities and focusing on key merchandise and design processes also bode well.

However, we note that Abercrombie has been witnessing a tough time for quite some time now as it has been putting up dismal performances for the last few quarters. Evidently, the company posted in-line earnings in first-quarter fiscal 2017 after four back-to-back earnings miss. In fact, it has delivered an average negative earnings surprise of 26.2% in the trailing four quarters. Also, its sales have lagged estimates in three of the last five quarters. In the fiscal first-quarter, both its top line and bottom line declined year over year. The fall in the top line primarily stemmed from a tough retail environment characterized by heightened promotional activity and soft comparable sales.

Also, Abercrombie has fallen a prey to the tepid retail environment, particularly in the apparel segment. Retail industry’s headwinds like consumers splurging online and sluggish store and mall traffic are heavily impacting most retailers, including the big-box ones. However, per the sources, the online behemoth, Inc. AMZN has not been a problem to Abercrombie, but the company’s inefficient supervision and incompetent marketing for its products remain potent challenges.

These headwinds are well reflected in Abercrombie’s share price that has plunged over 50% in the last one year, wider than the Zacks categorized Retail – Apparel/Shoe industry’s decline of 27.5%. Currently, the industry is placed at bottom 7% of the Zacks Classified industries (237 out of 256). In contrast, the broader Retail-Wholesale sectors gain of 11% in the said time period.

Well, the troubles at Abercrombie surely cannot be ignored. However, it remains to be seen if the company’s decision to pursue its business plans and reject any potential transaction will prove to be a right move.

If interested in the Retail space now, you may opt for The Children's Place, Inc. PLCE, which has surged 23.4% in the past one year and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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