Beware Falling Comps! Abercrombie & Fitch to Report Third Quarter

Abercrombie & Fitch will report earnings for the third quarter of fiscal 2014 before market Thursday morning. Abercrombie shares have fallen nearly 16% in the past year as mall traffic slowed and spread thin sales across competitors including American Eagle Outfitters and Aeropostale

Abercrombie owns its namesake stores, an affiliated chain of children's stores, and the Hollister Co. brand. The stores target a preppy youth demographic. However, customer traffic has continually slowed across the brands suggesting that the inventories no longer appeal to trend-conscious shoppers.

However, will that pattern continue in the third quarter? Here's what to look for in the earnings press release.  

Quarterly estimates to beat
Analysts expect third quarter revenue of $1.1 billion and earnings per share of $0.44. Abercrombie has missed revenue estimates for three of the past five quarters and EPS estimates for the past two quarters. 

Abercrombie estimates that the third quarter will bring lower comps than the second and deliver EPS in the range of $0.40 to $0.45. 

Quarterly results to beat
Investors and analysts will directly compare Abercrombie's third quarter results to the same period last year. The third quarter of 2012 featured revenue of $1.2 billion and EPS of $0.87. 

Total company comps for that quarter were down 3% compared to the prior year. Abercrombie & Fitch store comps were down the most at 4% while Abercrombie Kids comps were down 3% and Hollister Co. comps were down 1%. 

It's also worth comparing the new results to the prior quarter. Abercrombie reported second quarter net sales of $945.7 million, which was down 1% from the prior year. EPS was $0.16 compared to $0.19 in 2012.  

Total comparable store sales were down 10% in the second quarter. Hollister Co. posted the largest comps decrease at 13% followed by 6% for Abercrombie & Fitch and 3% for Abercrombie Kids. 

Facing down American Eagle and Aeropostale
American Eagle Outfitters will report its third quarter on December 6. Analysts expect revenue of $846 million and $0.18 in EPS. The company predicts EPS of $0.19 for the third.American Eagle has met or beat revenue estimates for the past five quarters but missed on EPS for two of those quarters. 

Analysts predict that Aeropostale will have revenue of $519 million and a net loss of $0.24 per share, which falls within the company's forecast of $0.21 and $0.26. Aeropostale has met or beat revenue estimates for the past five quarters and missed on EPS for three of those quarters. 

Foolish final thoughts
Abercrombie's likely in for a rough third quarter. The second quarter featured a double-digit comp drop for Hollister that needs to improve greatly before the company will look healthy overall. If the third quarter proves weak, the competitive environment of the fourth quarter could prove brutal for Abercrombie & Fitch. 

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