Abercrombie Up on ZALORA Deal, Online Business Gets a Boost
With the brick-and-mortar concept losing popularity among online shopping, retailers are quickly transforming their operating patterns to keep pace with the evolving trends. In an attempt to meet consumer demands and tap sales, retailers are constantly testing new online selling platforms. In one such move, Abercrombie & Fitch Co. ANF recently inked a wholesale deal with ZALORA – Asia’s leading online fashion hub.
Shares of Abercrombie jumped about 3% following the announcement. We believe this news finally instilled some positive sentiment among investors for this Zacks Rank #4 (Sell) stock, which slumped 59.4% in the last one year, considerably underperforming the Retail–Apparel/Shoe industry’s decline of 19.7%. This underperformance could be largely attributable to a tough retail landscape, mounting competition and foreign currency headwinds, which have been hurting Abercrombie’s performance for a while now.
Coming back to the aforementioned deal, ZALORA will start selling Abercrombie’s Hollister brand merchandise via its online stores from next week. Notably, Hollister is the company’s best performing brand at present. This was evident when solid Hollister brand performance in fourth-quarter fiscal 2016 provided some respite to the otherwise dismal results.
Further, management expects continued strength in Hollister and improvement in the company’s namesake brand to fuel comparable store sales in fiscal 2017. Talking of the namesake brand, products of Abercrombie & Fitch are also expected to be launched at ZALORA toward the end of April. Clearly, the company is going all the way to boost its presence in the online shopping world.
ZALORA, a nearly five-year old fashion destination, has robust geographical reach with its presence in 11 countries, including Singapore, Indonesia, Malaysia & Brunei, the Philippines, Hong Kong and Taiwan. Moreover, ZALORA offers several lucrative benefits to customers, like super fast deliveries and free returns up to 100 days, which enhance their experience and attract more traffic.
Thus, we believe that this collaboration is likely to benefit Abercrombie substantially as it will have an access to over 600 million online customers of ZALORA, given the latter’s solid network and popularity.
However, a partnership like this is not new for the company. Incidentally, Abercrombie entered into a wholesale agreement with Europe’s biggest online fashion destination – Zalando, in Aug 2016. Following the deal, Zalando offers merchandise of all Abercrombie brands through its web stores across 15 European markets. Notably, partnership with this Germany-based e-tailer helped Abercrombie gain access to Zalando’s over 18 million active patrons, thus augmenting Abercrombie’s top line.
Abercrombie is undertaking all possible steps to enhance its online business, which seems to be capturing more significance with each passing day. Evidently, though Abercrombie’s net sales declined about 7% to $1,036.4 million in the fourth quarter, direct-to-consumer and omni-channel business contributed 31% to the top line.
Hence, we believe that alliance with ZALORA, and similar ventures should help Abercrombie cushion its top line amid a challenging and competitive retail scenario.
Stocks to Consider
Some better-ranked retail stocks are The Children’s Place, Inc. PLCE, Burlington Stores, Inc. BURL and Foot Locker, Inc. FL. While Children’s Place and Burlington sport a Zacks Rank #1 (Strong Buy) each, Foot Locker carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Children's Place has an average positive earnings surprise of 39% in the trailing four quarters. The stock has a long-term growth rate of 8%.
Burlington has a long-term growth rate of 15.9%. Also, the company has a superb earnings surprise history.
Foot Locker, with long-term earnings per share growth rate of 9.7%, has delivered positive earnings surprise in the last three quarters.
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Abercrombie & Fitch Company (ANF): Free Stock Analysis Report
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Children's Place, Inc. (The) (PLCE): Free Stock Analysis Report
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