American Eagle Outfitters (NYSE: AEO), whose competitors at the mall include Abercrombie & Fitch (NYSE: ANF) and Gap (NYSE: GPS), is part of a sector I'm not much of a fan of currently: retail. Just saying the word aloud makes it sound repulsive these days. Don't get me wrong, retail will come back (someday). For now, though, it's difficult to look at the numbers associated with the industry, especially the same-store sales.
Looking at American Eagle, I can see that its third quarter was, as expected, not too inspiring. Adjusted earnings per share dropped 33% to $0.30. Worse, comps plunged 7%. Last year at this time, comps increased 2%.
It's tough out there, folks, and it probably will get tougher. American Eagle, like every retailer out there, is facing a perplexing problem. What's the best way to get traffic through the door? Marketing and promotions. What do retailers have to focus on this Christmas season? Containment of costs. Margins are important, and management doesn't want them to deteriorate too badly. You can see the challenge. Plus, American Eagle can't really count on its target shopper. Young people are oftentimes fickle and ready to jump to some other business near the food court. Not a great position to be in.
The Dow was up nearly 500 points on Friday. Everything's fine, right? Not on your life. It's going to be a lousy Christmas for mall retailers such as Gap (NYSE: GPS) and Abercrombie & Fitch (NYSE: ANF), and it might be especially lousy for AnnTaylor (NYSE: ANN). What a pathetic story this one is.
AnnTaylor reported earnings for the third quarter yesterday, and it's stock closed down more than 9% on better-than-average volume. Here's why: the bottom line broke even on an adjusted basis, the analysts were calling for a penny earnings per share, and same-store sales plummeted -- I mean plummeted -- more than 19%. Those comps fell like the public approval rating of a CEO's compensation package in the context of the current economic quagmire (well, actually, they didn't fall that badly). The fact that the stock dropped only about 9% is pretty amazing. I think the decline should have gone well into the double digits. After all, management at AnnTaylor really has no idea how its Christmas season will ultimately turn out. Well, they have a little bit of an idea. They know it's going to stink. Badly. I suppose it was the euphoria of the day that kept a check on the stock's decline.
Retail is in the doghouse. Even biggies like Walmart (NYSE: WMT) and Target (NYSE: TGT) are going to have to hustle more than ever before to keep ahead of their competitors in this dreadful recessionary environment and hope that they can convince their shoppers to pull out as much of the green stuff as possible at their respective points of sale. It won't be easy. And if the big brand names are finding it challenging out there, then a colleague like AnnTaylor might not have much of a chance of bringing traffic out from the cold and onto the sales floor. As far as the shares go, I think they will be heading lower. I mean, I don't think there's much of a mystery there. I can't see what would possibly make the shares go higher from here. Then again, we have been trading on an irrational playfield as of late, so I do suppose anything is possible. For me, I'll stay away from AnnTaylor and make certain that my portfolio has nothing to do with it.
Disclosure: I don't own any company mentioned; positions can change at any time.
We all know that this Christmas is going to be particularly tough on retailers. Wal-Mart (NYSE: WMT), Target (NYSE: TGT), Sears (NASDAQ: SHLD), and Best Buy (NYSE: BBY), as well as hipper competitors Abercrombie & Fitch (NYSE: ANF) and Gap (NYSE: GPS), will be fighting it out at the mall Mad-Max style the next several weeks.
It's not going to be pretty. With comps and cash flows on the line, these chains will be looking to extract as much discretionary money from consumer wallets as is heavenly possible. But there's a troubling sign with respect to a popular gift option this year.
Gift cards have been soaring in popularity over the years. Not only do they make great presents, but retailers love them because they represent a little insurance policy: if the Christmas quarter isn't as strong as a retailer would like, then redemption of gift cards will theoretically help the bottom line in the next quarter. The card purchases do not get recorded as a sale until they are redeemed. So it's like a squirrel putting food away for the long, cold winter.
Unfortunately, we have some bad news on this front: gift-card sales are expected to be down 6% this season. That's not what retail investors want to hear. It's just another reason for traders to short this sector.
This morning, ANF opened at $51.39. So far today the stock has hit a low of $50.87 and a high of $53.00. As of 12:00, ANF is trading at $51.29, down $3.42 (-6.2%). The chart for ANF looked slightly bullish before today and S&P gives ANF a positive 5 STARS (out of 5) strong buy ranking.
For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $65 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in eleven weeks as long as ANF is below $65 at November expiration. Abercrombie would have to rise by more than 25% before we would start to lose money. Learn more about this type of trade here.
ANF hasn't been above $35 since June and has shown resistance around $55 recently. Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in ANF.
J. Crew Group's (NYSE: JCG) stock is not a thing of beauty. The retailer's shares have been weak for a long time, and the latest quarterly numbers did nothing to change my mind about the stock's prospects.
For the second quarter, J. Crew, whose competitors include Abercrombie & Fitch (NYSE: ANF) and Gap (NYSE: GPS), reported a 10% increase in top-line sales. Not bad, I suppose. But I'll tell you what, there is some bad to come. Operating income went down 15%. Gross margin saw an unfortunate decline, dropping from 43.7% to 41%. And earnings per diluted share came in at 28 cents compared to last year's 32 cents per diluted share. That's a better than 12% drop.
Now, there is something to consider with the stats. The earnings release states that a systems upgrade in the direct-sales channel is affecting the results. In fact, there apparently were some costs related to the upgrades that were unexpected. Management says that this sum was equal to $3 million. In theory, these upgrades will help to position the company for long-term growth.
A hot retailer reporting a 4% drop in second quarter profit in the face of a 4% decline in same-store sales might not seem like good news but, in a very tough retail climate, it's a sign of how well Abercrombie and Fitch (NYSE: ANF) is holding up.
The stock's up more than 2% on the company's second quarter earnings, released this morning. The highlights:
Revenue up 5% to $845.8 million.
Abercrombie and Fitch same-store sales up 3%. abercrombie (kids clothes) SSS down 11%; Hollister down 9%, RUEHL down 22%.
EPS down 1% to 87 cents on improved gross margins.
For a company to increase gross margins in the face of soaring commodity costs and timid consumer spending is extremely impressive, and a testament to the company's continued pricing power.
Investors have to be somewhat troubled by the performance of Hollister and the much-hyped RUEHL. Hollister may have been hurt because, as a lower-price point version of Abercrombie (Abercrombie won't call it that but that's what it is), its shoppers may be more sensitive to the economy. The huge plunge in same-store sales at Ruehl indicates that that brand might not have the great future people once thought it did -- but at less than 2% of the company's total sales, it won't drag anything down.
The stock has taken a beating with the rest of the retailers but, long-term, its prospects remain as strong as ever.
Even with the stimulus checks, retail sales numbers for June and July have been nothing to cheer about. And this coming week should provide another look at how things have been shaping up in the apparel and accessories arena. A number of companies are scheduled to release quarterly numbers, from upscale retailer Nordstrom to the parent of discounter TJ Maxx, from hipster Urban Outfitters to global giant Wal-Mart. Here's a look at what Wall Street is anticipating.
Analysts surveyed by Thomson Financial expect the following to report strong earnings growth when compared to the same period of the previous year.
Abercrombie & Fitch (NYSE: ANF - option chain) shares are tanking today after the company reported a 7 percent decline in same-store sales in July, much worse than the 1.4 percent decline expected by analysts. Apparently, suburban Moms and Dads decided that $100 jeans were not the correct place to spend their economic stimulus checks. Either that or they were finally turned off by the three-quarters naked models in the store windows. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on ANF.
This morning, ANF opened at $52.13. So far today the stock has hit a low of $49.55 and a high of $52.72. As of 12:50, ANF is trading at $49.55, down 6.18 (-11.1%). The chart for ANF looks bearish but S&P gives ANF a positive 5 STARS (out of 5) strong buy ranking.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $65 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in six weeks as long as ANF is below $65 at September expiration. Abercrombie would have to rise by more than 20% before we would start to lose money. Learn more about this type of trade here.
ANF hasn't been above $65 since late June and has shown resistance around $56 recently. This trade could be risky if the economy stages a rebound, but even if that happens, the position above could be protected by reluctant shoppers who still have lingering worries about their wallets.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in ANF.
Abercrombie & Fitch (NYSE: ANF) shares have been slipping some of late. Recent insider selling is also flashing a warning for this stock. Over the past three months, insiders have sold $59.0 miilion worth of ANF stock. Insider selling has slowed its pace over the past few months, but it is still happening. A filing released on Saturday indicated that a director at the company sold 7800 shares of ANF, valued at over $500,000. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on ANF.
After hitting a one-year high of $85.77 in October, the stock hit a one-year low of $66.05 in January. This morning, ANF opened at $72.72. So far today the stock has hit a low of $70.50 and a high of $72.72. As of 12:25, ANF is trading at $70.70, down $1.90 (-2.6%). The chart for ANF looks bullish but deteriorating, while S&P gives the stock a very positive 5 STARS (out of 5) strong buy rating.
For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $85 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make a 6.4% return in three months as long as ANF is below $80 at August expiration. ANF would have to rise by more than 21% before we would start to lose money.
ANF hasn't been above $85 by more than a few cents at all in the past year and has shown resistance around $78 recently. This trade could be risky if the company's earnings (due out in on 8/15) are a positive surprise, but even if that happens, this position could be protected by resistance ANF might find at its 200 day moving average, which is currently around $77.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in ANF.
After hitting a one-year high of $85.77 in October, the stock hit a one-year low of $66.05 in January. ANF opened this morning at $75.02. So far today the stock has hit a low of $73.96 and a high of $76.32. As of 12:10, ANF is trading at $74.75, up 24 cents(0.3%). The chart for ANF looks bearish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $65 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just three weeks as long as ANF is above $65 at May expiration. Abercrombie would have to fall by more than 13% before we would start to lose money. Learn more about this type of trade here.
ANF hasn't been below $66 at all in the past year and has shown support around $70 recently. This trade could be risky if the company's earnings (due out on 5/16) disappoint, but even if that happens, this position could be protected by the support the stock might find around $70, where it has bottomed out four times in the past six months.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in ANF.
Abercrombie & Fitch Co. (NYSE: ANF) shares opened lower this morning after the retailer posted a 10% drop in March same-store sales. Analysts had been expecting a drop of 4.5%. However, the stock is trading higher now as positive results from other retail outlets like Aeropostale (NYSE: ARO) have encouraged the markets. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on ANF.
After hitting a one-year high of $85.77 in October, the stock hit a one-year low of $66.05 in January. ANF opened this morning at $72.65. So far today the stock has hit a low of $72.36 and a high of $75.89. As of 12:50, ANF is trading at $74.81, up 0.79 (1.1%). The chart for ANF looks bearish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $65 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 9.9% return in just five weeks as long as ANF is above $65 at May expiration. Abercrombie would have to fall by more than 13% before we would start to lose money. Learn more about this type of trade here.
Fears over further economic slowdown are dragging most stocks down as market trading is blood red again after a Labor Department report showed a rise of 1.7% in U.S. import prices in January. But not all the companies are pulled down by investors' economic concerns. In fact, shares of teen retailer Abercrombie & Fitch Co. (NYSE: ANF) have gained a little over 0.5% in early morning trading, after the company posted a rise of 9% for its fourth-quarter profit.
For the quarter, Abercrombie & Fitch reported that its profit climbed to $216.8 million, boosted by strong sales from its Hollister Co. chain. Lower theft rate and higher profit margins also offset deeper discounts and the company posted earnings of $2.40 per share. Analysts were expecting the retailer to show earnings of $2.36 per share in the quarter.
Abercrombie & Fitch also announced an 8% growth in revenues, to $1.23 billion, up from $1.14 billion a year earlier when the company benefited from an extra week. For the quarterly same-store sales though, the retailer posted a decline of 1%.
Abercrombie & Fitch Co. (NYSE: ANF) shares are getting a boost this morning after fellow high-end retailer Nordstrom (NYSE: JWN) posted a third-quarter profit well above analysts' expectations. JWN's Q3 profit rose 22% to $165.7 million, or 68 cents per share, while analysts were looking for 52 cents. Investors are bidding up luxury retailers today in anticipation of good results from similar companies. If you think that ANF won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on that stock.
After hitting a one-year high of $85.77 in October, the stock has declined over the past month. ANF opened this morning at $72.50. So far today the stock has hit a low of $72.01 and a high of $75.00. As of 11:15, ANF is trading at $74.66, up $2.30 (3.2%). The chart for ANF looks bearish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
Abercrombie & Fitch Co. (NYSE: ANF), Gap Inc. (NYSE: GPS), and Nordstrom Inc. (NYSE: JWN) are scheduled to report earnings next week, offering a chance to see how these apparel retailers have been doing in the lead-up to the holiday season.
Abercrombie hasn't fallen short of Wall Street's earnings expectations since Q2 2006. When it reported second quarter 2008 results back in August, earnings were 88 cents per share, beating the consensus estimate of analysts surveyed by Thomson Financial by a penny, as well as the actual 72 cents per share in the same period a year ago. For the third quarter, analysts expect $1.28 per share, up from $1.11 in the same period a year ago.
Abercrombie's 13.6% earnings per share growth forecast for the next year is better than the S&P 500, and much better than the apparel retail industry average of -0.5%. The analysts' consensus recommendation has been to buy Abercrombie for at least six months, but about half of those analysts rate it a hold. The share price reached a 10-year high of $85.77 earlier this month, before sliding to close Friday at $75.01.
For news about Abercrombie and other retailers that could influence the earnings results, check out BloggingStocks' Abercrombie & Fitch coverage.
American Eagle Outfitters (NYSE: AEO), whose competitors at the mall include Abercrombie & Fitch (NYSE: ANF) and Gap (NYSE: GPS), is part of a sector I'm not much of a fan of currently: retail. Just saying the word aloud makes it sound repulsive these days. Don't get me wrong, retail will come back (someday). For now, though, it's difficult to look at the numbers associated with the industry, especially the same-store sales.
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