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Missed earnings are only half the story with this beaten retailer

Talking Numbers

Investors ditched shares of Abercrombie & Fitch on Thursday after the teen retailer reported mixed second-quarter earnings.

The company said it earned 19 cents per share, compared with  analyst estimates of 11 cents, but revenue came up short at $891 million. The stock fell as much as 5 percent during trading.

Sales for the second quarter were somewhat below our plan,” said Abercrombie CEO Michael Jeffries on a conference call with investors. “The most significant development over the past quarter has been the great progress we believe we have made in evolving the fashion component of our assortment,” he said. “We remain highly focused on returning to growth, and believe we are absolutely taking the right steps to accomplish that.”

Abercrombie’s stock has been an outperformer on the year, up some 27 percent, so is the company actually turning a corner?

“A lot of times I like to get involved with companies that are beaten up and bleeding, but I have to have a reason to think that the company is in triage and the hemorrhaging is about to stop, and in Abercrombie’s case, I don’t even have confidence that the doctors know basic first aid,” said The Oxford Club’s Marc Lichtenfeld.

According to Lichtenfeld, there are three reasons to avoid Abercrombie: same-store sales, cash flow and blind optimism from the company’s leadership despite a poor performance.

“I would not touch this stock. Don’t be a hero.”

Todd Gordon of Tradinganalysis.com said the stock could lose another 12 percent of its value in the coming months.

“Abercrombie is interesting,” he noted. “The stock has spent the last year recovering from that 20 percent gap down on earnings last August.”

Gordon pointed out that the stock has performed well over the course of the past year, but is now running into resistance at $46.25 per share. “I think this turnaround story might be hitting a technical resistance level,” he said. “I’m looking for [the stock] to go down and test the lower end of that trend channel at $36 per share.”