Abercrombie & Fitch is likely to remain under pressure

Abercrombie & Fitch is likely to remain under pressure

EBITDA margins at clothing retailer Abercrombie & Fitch (A&F) are likely to remain under pressure as heavy discounts continue, according to stock analyst Trefis.

Describing the company’s recent margin performance as "wayward", Trefis said it had been impacted by shoppers migrating away from logo branded basics and towards fashion-forward products from the likes of Zara, Forever 21 and H&M.

"Going forward, we expect the retailer’s overall EBITDA margins to decline slightly in the near term and stabilise over the next three-four years," Trefis said.

"We believe that Abercrombie will continue to offer heavy discounts on its products amid fierce competition from fast-fashion players and falling foot traffic across the industry."

Margins would also be impacted by increased investment in direct-to-consumer and omnichannel initiatives, the analyst said, adding that rising direct-to-consumer sales were typically less profitable than store sales.

However, Trefis also posed an alternative scenario, theorising that continued store consolidation, coupled with an aggressive phasing out of logo merchandise in favour of fashion-forward inventory, might yet boost profitability.