Abercrombie & Fitch (ANF), whose mall colleagues include American Eagle Outfitters (AEO) and Gap (GPS), closed over 4% higher on Tuesday on active volume. The market liked the fourth quarter numbers. I did not.
Let's see. Total sales were down 5%. Same-store sales skidded 13%. Total company domestic sales contracted 12%. And net income came in at 91 cents per share, adjusted. This compared unfavorably to the $1.06 per share made in the year-ago period.
Do you understand why I might be a little hesitant about the data? Of course, we have to stop and consider what drove the buying to initiate a head-nodding wave of comprehension through our system: the retailer beat the analysts' expectations. According to Reuters, the earnings per share estimate was for four pennies less.
Okay. We get it. Does that mean we too have to buy the story?
Well, management was able to cool it with the discounting. That's something the chain should expand upon. (For that matter, the whole industry needs to move away from programming shoppers to respond only to sales, but that's an entirely different discussion, and it's unlikely to be rooted in reality, if you know what I mean). Unfortunately, the gross profit margin could have used some assistance.
Shares of Abercrombie & Fitch have held up well so far this year, but I just don't consider now the time to buy the stock. I've been wrong on the company before, I should note. So, yes, there could be a trade here, but I don't like the potential for risk with the situation. Furthermore, my colleague Louis Navellier put the business on his list of ten stocks not worthy of Valentine's Day love. I tend to agree.
Disclosure: I don't own any company mentioned; positions can change without notice.