Argus Downgrades Abercrombie & Fitch To Sell, Looking For Clearer Path To Accelerating Comps

Argus has downgraded Abercrombie & Fitch Co. (NYSE: ANF) to Sell from Hold, saying its rebranding efforts are not resonating with customers and have alienated its traditional followers, thereby hurting its comps.

The teen retailer’s third-quarter comps fell 14 percent, its worst quarterly decline for the brand yet. Further, the brokerage pointed out Abercrombie still doesn’t sell plus sizes to the two-thirds of Americans who are overweight, while nearly every other competitor has jumped on that bandwagon long ago.

Analyst Commentary

“What’s worse is, young people today don’t care about brand names in clothing anymore — something that Abercrombie has always relied on to drive sales. Their customer is looking for the cheapest clothing, and if they will pay more it will only be for superior quality and style, not brand,” analyst John Eade wrote in a note.

Eade noted that the new style is deemed mediocre, and product quality is relatively average versus peers.

Valuations

The analyst slashed his FY 2017 EPS estimate to $0.02 from $0.56 to reflect the company’s weaker-than-expected third-quarter results and challenging sales outlook for the remainder of the year.

Eade also trimmed his FY 2018 EPS estimate to $0.24 from $0.71 as he is not expecting the company returning to flat to positive comp sales performance in FY 2018, due to the tepid response for its rebranding process.

“We think it will be a challenge to substantially increase comp sales in a retail environment that is competing with “fast-fashion” styles that are out of ANF’s traditional expertise. Until we see a clearer path to accelerating comp sales, we are lowering our rating on ANF to SELL,” Eade added.

Shares of Abercrombie & Fitch closed Thursday’s trading at $16.24 and were seen down 2.16 percent at $15.89 in Friday's morning session.