no position, but sorta intrigued by valuation. Fundamentals are tough. Negative SSS. Inventory is clean, which is always a good sign. New CEO. Traditional logo wear is out of fashion, but I think the brand still carries some value. Capex is now lower than D&A, so they could generate some nice cash. near term, they will get hit by strong $/weak euro, as Europe derives a big chunk of revenue/profit. we saw a profit warning from RL, and that is behind numerous EPS cuts/downgrades on ANF.What's interesting to me is this company is now sub $2B mkt cap. Under 5x EV/EBITDA, and just 0.4x EV/sales, which implies the company will never earn over 5% op margin. We know 20% op margin is a thing of past, but there is a lot of room btwn 5% and 20%. i dunno. 0.4x just feels too low (AEO at 0.8x).
Due to the success of my long AEO Short ANF trade, it's now up to ~7% of my portfolio.Every time I look into various ANFs there's no shoppers. AEO always has at least some traffic [sample size]. ANF is now discounting 70% off according to their signs. It is certainly cheap on many measures, just not on PE and with EPSAdj est to drop at 13.2%, Sales down 9.7% Qtly YoY, down 7.8% for FY, given the action you'd expect a worse Q4 than that even. What's priced in? Who knows..."Last quarter, the company reported a YoY decline in revenue and EPS. While commenting on the recent price revision, Eric Beder, Wunderlich analyst, believed that there are no hopes for “any type of turn in FY16” and Abercrombie & Fitch Co will continue to face stress both at the domestic and international front. He added: “We believe both Abercrombie and Hollister have been unable to retain any pricing power as they switch away from logo-driven product, despite material cost cutting and store pruning. On the international front, we are worried over foreign exchange (FX) issues and what has been a domestic business highly dependent upon tourist-driven traffic”. Mr. Beder, therefore, expects the company to announce “materially disappointing” 4QFY14 results on March 4 this year."
one more thing. largest holder of ANF is FLPSX. this time last year I noted he was biggest holder of BBBY. still recall one meeting I hosted with a struggling retailer (since acquired). JT walked in the room, and the CEO immediately joked "now I know my stock is really cheap". oh yeah, ARO pre-announced to upside. Still negative SSS. but been a while since ARO guided up...
"priced in" in retail is art rather than science, esp. for marginally profitable concepts. i will note 0.4x EV/sales used to be reserved for stressed retailers, not for a semi legit brand like ANF. Several non-profitable/much more flaky apparel retailers are now trading at higher multiples, and the only difference is positive SSS.As for no turn in FY '16, he might be right, but who really knows. only thing i do know is this stock will have a 4 handle if/when they post positive SSS. my worry is new mgmt will come in and kitchen sink everything and rebase price points, which is still pretty lofty at 60%+ gross margin. or one could view it as plenty of fat to cut. anyone who's been to the HQ knows it probably isn't that hard to cut some cost.if HOTT can be taken out at 0.8x EV/sales, RUE at over 1x, one can always dream, right?
i will note 0.4x EV/sales used to be reserved for stressed retailersNit: According to BBG, closer to 0.5x than 0.4x.;)JT is awesome.
kudos to Naj. the pair trade is working to a T. i am holding on to my half position of ANF. seemingly yet another reminder of not to be a hero and call a turn. wait for the turn.
kudos to Naj. the pair trade is working to a T. plus 29% on short ANF,+13.6% on long AEO side.I love it when a plan comes together.seemingly yet another reminder of not to be a hero and call a turn. wait for the turn. Yep. One lesson that was hammered home hard when I was working in FX. People want to make hero calls just like Kobe wants to hero ball.The only time to try to do this is at valuation extremes, i.e. March 2000, Euro at 82 cents, Euro at 1.60, March 2009, etc. Where you no longer mind sitting in a position and waiting because you have to eventually be right. Harder to do in single stock name turnarounds imho. Wait for them to beat estimates, then start buying.
Due to ANF falling 33% and AEO up 19%, I trimmed my AEO long to be closer to net-beta of zero on this pair trade.
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