Federal prosecutors have brought charges against Mike Jeffries, the former CEO of Abercrombie & Fitch (ANF). Known for helping shape the fashion retailer’s image during a pivotal era, Jeffries is charged with using his status and power to operate an international sex-trafficking ring. He allegedly ran this illegal operation, which centered around the coercion of male models, with two partners.
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Since news of these accusations broke earlier this week, ANF stock has struggled and is currently trending downward. This volatility is likely due more to negative market momentum than to anything related to the charges, as Jeffries hasn’t worked with Abercrombie since 2014. However, it could have a negative impact in the future.
What’s Happening with Abercrombie & Fitch Stock?
After falling when markets opened today, Abercrombie & Fitch stock still hasn’t recovered. As of this writing, ANF stock is down 1% amid fairly high volatility. This follows a difficult week; ANF stock has spent the past five days trending downward and is currently in the red by 8%.
As noted, this trading pattern probably doesn’t have much to do with the case against Jeffries. Abercrombie rivals Gap (GPS) and American Eagle Outfitters (AEO) have both struggled over the past week, as has industry leader Ralph Lauren (RL), who is scheduled to report earnings on November 7.
While all three companies are currently in the green today, it’s clear that fashion stocks in general are battling difficult market conditions. However, investors should still consider the long-term implications that the charges against Jeffries pose for ANF stock.
Why this Matters
Jeffries is one of three men implicated in the sex trafficking case. A statement from the U.S. Attorney’s office in the Eastern District of New York states that all three are accused of using “a combination of force, fraud, and coercion to traffic men while operating a prostitution enterprise.”
The Wall Street Journal reports that the male victims of the ring were aspiring male models whom Jeffries and his co-conspirators preyed on and took advantage of. This highlights the dark side of the company’s marketing strategy of using shirtless male models, a tactic that Jeffries helped to elevate Abercrombie to new heights in the 1990s and early 2000s. This strategy made the company successful enough to go public in 1996.
The marketing campaigns deployed under Jeffries’ leadership rocketed Abercrombie to the top of the teen fashion world. Now it has been revealed that this empire was built on illegal activities, which could permanently taint the company’s image going forward. Consumers have other options for clothing shopping, and now they may be more compelled than ever to prioritize Abercrombie’s competitors.
Is Abercombie & Fitch Stock a Buy, Sell or Hold?
In the face of this controversy, Wall Street remains mostly bullish on Abercrombie. Analysts have a Moderate Buy consensus rating on ANF stock based on five Buys, two Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. After a 130% rally over the past year, the average ANF price target of $186 represents a 31.32% change from the last price of $141.97.
Since the case against Jeffries broke, no analysts have updated their ANF stock ratings or price targets. Most recently, Dana Telsey of Telsey Advisory maintained a Buy rating, issued on October 16. As the case unfolds, though, it is likely that some analysts will issue more measured takes on the company, particularly as its impact on sales becomes apparent.
