Zalora's deal, a boost for ailing Abercrombie & Fitch's shares

Both business and stock trading at Abercrombie & Fitch have been a reason for concern for the company. Its just announced deal with Zalora, a leading Asian e-commerce platform, has been coined by many in the market as a much needed boost.

Market sources consulted by FashionUnited point out that this move clearly responds to Abercrombie & Fitch’s attempt to meet consumer demands for new, fully digital shopping experiences. It has been precisely this urge to resonate with its largest target audience that has encouraged the US teen apparel retailer to ink a wholesale deal with Zalora, Asia’s leading online fashion hub.

On the back of the news, shares of Abercrombie jumped about 3 percent. “We believe this news finally instilled some positive sentiment among investors for this Zacks Rank #4 (Sell) stock, which slumped 59.4 percent in the last one year, considerably underperforming the Retail–Apparel/Shoe industry’s decline of 19.7 percent,” sums up the analyst at Zacks who follows A&F.

From Zacks explain that 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.”

Zalora will start selling Abercrombie & Fitch collections next week

As announced by both parties earlier this week, Zalora will start selling Abercrombie’s Hollister brand merchandise via its online stores from next week. It’s worth mentioning that A&F’s sister brand Hollister is the company’s best performing brand at present.

“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,” concludes Zacks in a market’s research published Tuesday.

Zalora was launched five years ago and is present in 11 countries, including Singapore, Indonesia, Malaysia & Brunei, the Philippines, Hong Kong and Taiwan.

Zalora’s partnership is anticipated to give Abercrombie & Fitch a top line boost similar to that the brand experienced last summer, when started selling in Europe through Zalando. “Hence, we believe that alliance with ZALORA, and similar ventures should help Abercrombie cushion its top line amid a challenging and competitive retail scenario.”

Abercrombie is undertaking an overarching effort to enhance its online business, which has taken a toll on its net sales, which declined about 7 percent to 1,036.4 million dollars in the fourth quarter. Meanwhile, direct-to-consumer and omni-channel business contributed 31 percent to the top line in the same period.

During the past five years, ANF’s revenue has declined at an average annualised rate of about -4.4 percent. This rate got just worse, with a broader decrease (-6.9 percent) during the company’s most recent quarter.

Comparing profitability, analysts at Zacks point out that currently, Abercrombie & Fitch Co. net profit margin for the 12 months is at 0.23 percent. Comparatively, its peers have a net margin 3.16 percent, and the sector’s average is 11.94 percent. In that light, it seems in good position compared to its peers and sector.

Image:Abercrombie&Fitch, Facebook Official