Pre-Thanksgiving Rally In Abercrombie 'Full Of Stuffing, Not Meat'

Prior to the market open on Friday, Abercrombie & Fitch Co. (NYSE: ANF) reported dismal Q3 results, missing on both top- and bottom-line estimates (EPS $0.02 versus the estimated $0.21; revenue of $821.73 million versus the estimated $830.60). Since, the market and the Street have both responded.

Stock Reacts Amid Downgrades Throughout The Street

The stock dropped by around 12 percent in trading on Friday, gaining a bit back earlier this week. A&F has seen a number of analyst downgrades, however, and the consensus seems to be that, with the exception of the Hollister brand, which showed positive comp sales, the brand is facing strong headwinds.

Deutsche Weighs In

Deutsche Bank Markets Research analyst Tiffany Kanaga downgraded the stock to Sell from Hold and lowered her price target from $14 to $13 on Wednesday. The analyst noted that the pre-Thanksgiving rally, which showed some recovery in Abercrombie’s share price, was unsubstantiated: “full of stuffing, not meat.”

According to the analyst, recovery for the brand will likely be prolonged, as its evolution will take time, while “trend-right” peers are thriving.

“We are concerned that investment in the new marketing campaign is not yielding sufficient returns,” said the analyst. “With a new store prototype and loyalty program only piloting in early next year and likely to take at least a few quarters to translate into any material comp lift.”

Kanaga noted a “widening gap” between the clothing retailer and competitor American Eagle Outfitters (NYSE: AEO), which is her preferred way to “play the teen apparel space.”

At last check, Abercrombie was down 0.52 percent at $15.41.