Why Abercrombie Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of teen-oriented apparel retailer Abercrombie & Fitch (NYS: ANF) sank 13% Wednesday after its quarterly results and full-year outlook disappointed Wall Street.

So what: Abercrombie's first-quarter EPS squeaked past analyst expectations, but a clear miss on the top line -- $921.2 million versus the consensus of $951.1 million -- is forcing investors to lower their valuation estimates on the stock. Particularly weak sales in Europe and an 18% jump in costs were the biggest culprits, triggering plenty of concern over its growth prospects going forward.

Now what: Management now expects same-store sales for 2012 to decline by a mid-single-digit percentage, but backed its EPS outlook of $3.50-$3.75 on the expectation of lower expenses. "Our international business [compared] negatively, but the economics remain strong," Chairman and CEO Mike Jeffries reassured investors. "With cotton cost issues now largely behind us, we look forward to strong year over year earnings growth in the back half of the year." With the stock hitting a new 52-week low today and trading at a cheapish forward P/E of 9, buying into that turnaround talk might not be a bad idea.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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