S&P: Abercrombie & Fitch view to stable

S&P said it revised its outlook on Abercrombie & Fitch Co. to negative from stable and affirmed all ratings, including the BB- corporate credit rating.

"We revised the outlook to reflect Abercrombie's performance in recent quarters, which was meaningfully below our expectations. This was primarily the result of ineffective merchandising, unfavorable exchange rates pressuring the company's meaningful tourism business, and increased industry competition," S&P credit analyst Andrew Bove said in a news release.

"These factors have reduced company profitability, and we expect that they will continue to weigh on company performance over the next 12 months. Despite net closures of 30-40 underperforming stores per year over the last several years spread across both Hollister and Abercrombie, the company has been unable to consistently improve profitability.

“The company is also in the beginning stages of a repositioning effort for the Abercrombie & Fitch brand (which represents close to half of the company's sales) to target a slightly older customer base, which we believe could prove challenging to execute, and we expect performance improvement will be gradual with ongoing same-store sales declines and further weakening in the company's overall operating margin over the next 12 months.

“In addition to these company-specific challenges, we believe the specialty apparel industry will remain difficult. This is because of heightened industry competition (especially from fast fashion, online, and off-pricing retailers), sustained highly promotional environment in the U.S., and the continuing trend of customers spending less on apparel and more on travel, health care, restaurants, housing, and savings in light of sluggish wage growth," Bove added in the release.

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