Why Abercrombie Shares Got Crushed

Why Abercrombie Shares Got Crushed

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 apparel retailer Abercrombie & Fitch plummeted 20% today after its quarterly results and outlook missed Wall Street expectations.

So what: The stock has been sluggish in 2013 on concerns over declining traffic, and today's second-quarter results -- income plunged 33% on a revenue dip of 1% -- coupled with downbeat guidance only reinforce that trend. In fact, same-store sales fell 10% over the year-ago period, which include online sales and sales at stores open at least a year, suggesting that its popularity versus the likes of Forever 21 and H&M is declining more quickly than expected.

Management now sees third-quarter EPS of $0.40 to $0.45, well below the average analyst estimate of $1.07. "Despite the challenging environment, we are very pleased by strong growth in our direct-to-consumer business and continued strong growth in China," Chairman and CEO Mike Jeffries reassured investors. "In addition, we are nearing completion of our long-term strategic review, and we are confident that this will provide us with a clear roadmap for sustainable growth in sales, profitability and return on invested capital." Given Abercrombie's rapidly weakening competitive position and the overall sluggishness in teen spending lately, I wouldn't be so quick to buy into that optimism.

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The article Why Abercrombie Shares Got Crushed originally appeared on Fool.com.

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