Abercrombie Stock Down 10% Today – Time to Buy ANF Stock?

The price of Abercrombie stock is declining 15% during this morning’s stock trading action following the release of the firm’s financial results covering the third quarter of the 2021 fiscal year despite sales and earnings surpassing analysts’ estimates for the period.

Revenues for the three months ended on 30 October landed at $905.2 million resulting in a 10.4% year-on-year jump. Growth was primarily fueled by higher sales in the United States – the most important geographical segment for the company – while both Hollister and Abercrombie reported strong year-on-year performance. The consensus forecast from analysts stood at $895.2 million for the quarter.

Gross profit margins declined 30 basis points compared to a year ago at 63.7% while the company stated that freight costs increased nearly 300 basis points per average unit cost. The company managed to offset that increase temporarily by reducing discounts and promotions.

“We continue to actively manage through ongoing supply chain constraints, including production and delivery delays and elevated costs, and are confident that we have the product, marketing voice and omnichannel experience to surprise and delight new and existing customers throughout the fourth quarter”, stated the firm’s Chief Executive Fran Horowitz in regards to the current situation.

Concerns about the impact that these freight costs could have on the company’s bottom-line performance during the holidays and even afterwards appear to be the reason why Abercrombie stock is dropping today.

Meanwhile, non-GAAP diluted earnings per share landed at $0.86 compared to the $0.76 the company reported a year ago. This figure exceeded analysts’ estimates by 20 cents.

The Board of Directors of Abercrombie & Fitch approved a $500 million share repurchase program that will be replacing a previous scheme that involved the purchase of 10 million shares.

Can this post-earnings decline result in the beginning of a downtrend for Abercrombie stock? In this article, I’ll be assessing the price action and fundamentals of this retail stock to outline plausible scenarios as we head to the most important quarter of the year for the business.

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Abercrombie Stock – Technical Analysis

The price of Abercrombie stock has failed to move above the $50 threshold two times already and that is resulting in a double or triple-top formation that further favors a bearish outlook for ANF – especially if this post-earnings decline spills over to the opening.

A drop to the $42 level would push ANF stock below its short-term moving averages and dangerously close to its 200-day moving average as retailers as a whole keep struggling to dissipate the market’s concerns about their ability to stock up for the holidays.

Momentum indicators are pointing to a bearish outlook as well as the MACD is crossing below the signal line. This move was accompanied by steadily decreasing positive histogram readings.

Meanwhile, the Relative Strength Index (RSI) is stepping out of overbought levels but it is still sitting above the 50 level.

Abercrombie Stock – Fundamental Analysis

Sales of Abercrombie have been steadily decreasing since 2013 from around $4.5 billion back then to $3.13 billion by the end of last year as competition in the retail space has been fierce amid the appearance of strong online proponents.

However, the firm has managed to maintain its profit margins at relatively decent levels – excluding last year as the pandemic took a cut of Abercrombie’s bottom-line profitability.

That said, net profit margins for the firm are very thin and that is one of the factors that is probably weighing the most on the valuation of the company as an increase in logistic costs could easily result in losses down the road.

Currently, the forward price-to-sales (P/S) ratio for ANF stock is standing at 0.7x while the forward P/E ratio is standing at 29.5x as per data from Koyfin.

This valuation seems rather high and justifies, to some extent, the significant decline that the stock is experiencing today as higher shipping costs and other supply-chain related expenditures would eat up most of the profits generated by the business amid its thin operating margins.

With this in mind, a decline below the 200-day moving average is fairly possible and, therefore, the downside risk for ANF stock seems elevated at the moment.

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