Let me contradict myself
CEO Mike Jeffries stated, “Comparable sales trends progressively improved during the quarter and with the inventory headwinds largely behind us, we expect to see continued sequential improvement in the second quarter.” Meanwhile, the company’s official guidance stated that it expects “comparable sales, including direct-to-consumer to be slightly down for the balance of the year.”
In other words, Abercrombie & Fitch Co. (NYSE:ANF)’s outlook for the remainder of 2013 is a murky mess that the CEO and his executives can’t even agree on. With double-digit same-store sales decline and no notable strength in e-commerce, I’m inclined to take the more pessimistic view of the company’s future.
Damage control
Yet a gloomy financial outlook for the rest of the year isn’t Abercrombie & Fitch Co. (NYSE:ANF)’s only problem. Regarding his widely circulated inflammatory comments, Jeffries has issued an official apology on the company’s Facebook page, stating that his comments were taken “out of context” and that the company is “completely opposed to any discrimination, bullying, derogatory characterizations or other antisocial behavior based on race, gender, body type or other individual characteristics.” So far, Jefferies’ apology hasn’t generated much sympathy.
In Jefferies’ defense, perhaps a company has the right to strive to be “exclusionary.” After all, would Louis Vuitton cater to a lower-income demographic that demanded $30 handbags? Should Armani start producing plus-size clothing simply because there might be a market for it? I doubt it, but there’s a big difference between keeping a company’s brand exclusionary and pompously declaring it in a public interview.
The Gap Inc. (NYSE:GPS) and American Eagle shareholders are probably relieved that their respective CEOs, Glenn Murphy and Robert Hanson, have kept a much lower public profile.
The Foolish Fundamentals
In conclusion, let’s compare Abercrombie & Fitch’s fundamentals to its primary competitors.
Forward P/E | 5-year PEG | Price to Sales (ttm) | Return on Equity (ttm) | Debt to Equity | Profit Margin | |
Abercrombie & Fitch | 11.95 | 0.92 | 0.94 | 12.64% | 3.52 | 5.25% |
Gap, Inc. | 13.41 | 1.37 | 1.23 | 40.18% | 43.06 | 7.25% |
American Eagle Outfitters | 11.83 | 1.22 | 1.12 | 20.02% | No debt | 6.68% |
Advantage | American Eagle | Abercrombie | Abercrombie | Gap | American Eagle | Gap |
Source: Yahoo Finance, May 24 (does not include recently reported 1Q figures)
On a fundamental basis, Abercrombie & Fitch Co. (NYSE:ANF) doesn’t look too bad, and if analysts’ 5-year projections are correct, then it could actually grow faster than either The Gap Inc. (NYSE:GPS) or American Eagle Outfitters (NYSE:AEO). However, Abercrombie’s same-store sales plunge of 15% is a major red flag that suggests that the appeal of its three primary brands is waning – a factor that is hard to account for with a 5-year PEG ratio.
Both Gap and American Eagle have a wider variety of brands. The Gap Inc. (NYSE:GPS) offers a tiered pricing system with its three main brands, and also owns Athleta, an athletic apparel brand that is designed to rival. American Eagle Outfitters (NYSE:AEO) owns lingerie brand, which rivals Victoria’s Secret, and 77kids, which is positioned against Abercrombie Kids. Both companies have shown balanced strength across their brands, which can help offset losses from an individual brand. Abercrombie & Fitch Co. (NYSE:ANF), on the other hand, has three brands that seem to fall in tandem.
I’ve said it before, and I’ll say it again – avoid Abercrombie & Fitch Co. (NYSE:ANF). Despite a shifty change to its accounting method, which preserves the value of its inventory unless it expects to sell the merchandise below cost, this is the same old company that has been losing its appeal for over a decade.
The article Is This Retailer About to Bite the Dust? originally appeared on Fool.com.
Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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