Abercrombie shares pop on takeover speculation

By Retail FOXBusiness

A woman is reflected in a window as she walks past an Abercrombie & Fitch store on 5th Avenue in the Manhattan borough of New York, U.S., May 23, 2016. REUTERS/Carlo Allegri (Copyright Reuters 2017)

More consolidation may be on the horizon for teen-apparel retailers.

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After a host of bankruptcy announcements earlier this year from once-adored brands like Payless ShoeSource, the Limited and Wet Seal, private-equity firm Cerberus Capital Management is working on a bid alongside American Eagle Outfitters (AEO) for 90’s teen-retail sensation Abercrombie and Fitch (ANF), according to the Wall Street Journal.

Abercrombie’s shares, down more than 50% in the last 52 weeks, have fallen in recent years as customers flock to less expensive, fast-fashion alternatives like Zara and H&M, that give them immediate access to on-trend fashion items. The rise of e-commerce shopping has also helped fuel a shift away from once dominant bricks-and-mortar mall-based brands as Americans spend more money on platforms like Amazon (AMZN) and off-price retailers offering treasure-hunt experiences like TJX (TXJ) companies TJMaxx and Marshalls.

Earlier this month, Abercrombie told investors it was in preliminary discussions with “several parties” about a possible transaction, though it declined to provide additional detail.

In the final three months of 2016, Abercrombie said net sales dropped 13% from the year prior as comparable-store sales – a key metric for retailers – saw a 5% drop and earnings declined 16%. The company will report first-quarter results before the opening bell on Thursday.

By contrast, American Eagle – which carries a market capitalization more than double that of its rival, has seen sales trends on the rise at the same time Abercrombie’s have declined.  

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Cerberus, with more than $30 billion under management, is no stranger to investing in well-known brands that have fallen into tough times: In 2015, it bought 80% of direct-to-consumer cosmetics retailer Avon (AVP) for $605 million, taking a nearly 17% stake in the company. 

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