Teen clothing store, Abercrombie & Fitch Co. (NYSE:ANF) announced this morning that it was losing its chief executive, Michael Jeffries to retirement. Additionally, Jeffries is retiring from board of directors seat, Jeffries has been CEO since 1992. “I believe now is the right time for new leadership to take the company forward in the next phase of its development,” Jeffries said in a statement” (Star Tribute). The stock is surprisingly reacting positive to the news, as shares are up around 7% in early trading.
Short sellers have been driving into shorts against Abercrombie & Fitch
Additionally, to make issues more painful for Abercrombie & Fitch Co. (NYSE:ANF), short sellers have been driving into shorts against the stock like crazy. Short interest in Abercrombie jumped 17.4% in November alone, and current short ratio stands at 29.8%. Additionally, Morgan Stanley (NYSE:MS) just yesterday, cut its price target for the stock from $30 to $28. Morgan Stanley currently rated Abercombie an “equal weight” rating. Telsey Advisory Group also cut its price target for Abercrombie from $36 to $33. Credit Suisse Group AG (ADR) (NYSE:CS) has the company rated as a “hold” and quietly cut its full year target back from $28 to $27. Lastly, Topeka Capital Markets made a view changes to its view on Abercrombie to reflect its current “hold” rating and a price of $26, from $28. Here is what Morgan Stanley analysts had to say about Abercrombie: “We believe management is focused on the correct long-term initiatives. However, the profit profile of the business is permanently impaired, in our view. We are skeptical ANF can earn over $1.75 again. Ata 14x multiple, that implies a $25 stock,” the firm’s analyst wrote. This is not bullish in anyway, after the analysts says that the “business is permanently impaired”.
Abercrombie & Fitch fundamentals are not that impressive
Abercrombie & Fitch Co. (NYSE:ANF)’s fundamentals are not all that impressive either: price to earnings of 58, price to forward earnings of 13.57, PEG of 4.17, price to sales is undervalued at .46, price to book comes in at 1.28, price to cash is at 6.05, and price to free cash flow comes in at 13.77. Earnings are forecast to fall -75.80% this year, rise 20% next year and 14% over the next five years. Margins and management efficiency ratios are weak, short sellers are quite prevalent and the stock is down -18% year to date.
Overall, Abercrombie & Fitch Co. (NYSE:ANF) was once one of the top teen retailers that would provide reliable results. Jeffries, who has been at the helm since 1992, is a major player that Abercrombie is losing and will be hard to replace. Ultimately, Abercrombie will likely face some transitional pains with the new CEO and it will certainly be interesting to see what direction the company goes to now, after losing its long time leader. However, I think in the long run, Morgan Stanley is right and the business will never see results that it once did, and that will hurt the company.
Disclosure: None
