Why Shares of Abercrombie & Fitch Co. Are Out of Fashion Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of specialty apparel retailer Abercrombie & Fitch fell on Wednesday after the company reported disappointing fourth quarter earnings, suffering from a double-digit comparable-store sales decline. The stock also declined in the double digits, falling over 12% by midday.

So what: Abercrombie reported revenue of $1.12 billion for the quarter, down 13.8% year-over-year and short of analyst estimates by $50 million. Non-GAAP net income of $1.15 per share for the quarter was in-line with what analysts were expecting.

Overall, comparable-store sales fell by 10% during the fourth quarter, with the international segment getting hit the hardest, declining by 17%. Direct-to-consumer sales did rise by 1%, but a 13% decline in comps at the company's stores overwhelmed this growth. Comparable-store sales across all of Abercrombie's brands declined, with Abercrombie & Fitch declining 9%, Abercrombie Kids declining 6%, and Hollister declining 11%.

The company didn't provide guidance for either comparable-store sales or earnings going forward, but it does expect the negative impact from reducing sales of products with its logo to dissipate throughout 2015. Foreign currency exchange rates are expected to have a major impact, representing a significant headwind for the company going forward.

Now what: Abercrombie has now suffered falling sales for two years in a row, and its profits are well below historical levels. Last year, the company decided to stop printing its logo on its clothingas its brand was no longer resonating with its target customer, and the transition has been a difficult one.

Company's like Abercrombie only do well when the brand is popular, and that no longer appears to be the case. Before the recession, Abercrombie managed operating margins near 20%, compared to low single-digit operating margins today. At this point, there doesn't appear to be any sign that a turnaround is occurring at Abercrombie, and the market punished the stock severely as a result.

The article Why Shares of Abercrombie & Fitch Co. Are Out of Fashion Today originally appeared on Fool.com.

Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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