This month, Credit Suisse analyst Christian Buss downgraded Abercrombie to "underperform," noting the revenue pressure that weighed on brands with a heavy international presence in the fourth quarter. Given that 35 percent of Abercrombie's business comes from overseas, and that its stores there are more profitable than its U.S. locations, this trend doesn't bode well for the company.
What's more, additional trouble is brewing for the teen sector, as the U.S. entry of British value retailer Primark looms. The fast-fashion category has already caused a dent in prices and margins among the teen set, which should only get worse after Primark opens this year, Buss said. Whereas prices are already low at Forever 21, H&M and Uniqlo, they're even lower at Primark.
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A recent study by Credit Suisse compared the cost of nine "core product" categories, including T-shirts and skinny jeans, across fast-fashion stores in the U.K. The total basket price at Primark came in at 99 pounds, significantly lower than the average of 212 pounds.
"Primark's entrance to the USA in '15 could be a key event in the growth of 'deep value fashion' and will prove disruptive for the apparel sector as a whole," Buss wrote in a note to investors.
"The retailer's extreme low prices on fashion basics will help reset consumer expectations for pricing across apparel retail, eroding pricing premiums and taking profits from mid-value specialty retailers, department stores and discounters."
For its part, Abercrombie has made a number of tweaks to its business model, in an effort to cut costs and boost sales. The biggest change has been its shift away from logoed products.
Abercrombie will release its fourth-quarter results on Wednesday. Thomson Reuters forecasts call for the retailer to earn $1.16 a share on revenues of $1.168 billion.