Earnings Preview: Abercrombie & Fitch Co. and DSW Inc.

Retailers Abercrombie & Fitch Co. (NYSE:ANF) and DSW Inc. (NYSE:DSW) head to the earnings confessional tomorrow morning

by Alex Eppstein

Published on Aug 29, 2016 at 11:41 AM

Retail earnings are a major part of this week's economic calendar. Among the retailers slated to report tomorrow morning are Abercrombie & Fitch Co. (NYSE:ANF) and DSW Inc. (NYSE:DSW). Below, we'll take a closer look at what the options crowd is expecting from the two retail stocks on the eve of earnings.

Starting with ANF, options traders have been decidedly put-skewed of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 1.26 puts for every call during the past two weeks. Echoing this trend, the stock's Schaeffer's put/call open interest ratio (SOIR) checks in at 1.56 -- outstripping 98% of all other readings from the prior 12 months.

With respect to earnings, the options market is pricing in a nearly 19% move tomorrow, in either direction. This is sharper than the average 11.5% one-day swing following ANF's last eight reports. Drilling deeper, perhaps the recent put buyers have been informed by the stock's most recent earnings reaction, when the shares sold off 15.7% in the ensuing session.

A repeat performance would be a disaster for Abercrombie & Fitch Co., wiping out a lot of the progress the shares have made since bottoming at $16.49 in late June. At last check, the retail stock was up 2.3% at $23.15, meaning it's advanced over 40% in a roughly two-month span.

Turning to DSW, the stock is off 1% at $25.69, despite a $4 price-target hike to $23 at Canaccord Genuity. These shares have also been hot in recent months, stair-stepping their way higher since a five-year low of $18.51 in late May.

DSW could make a dramatic move after earnings, too. Historically speaking, the stock has resolved to the upside in the session after six of its past eight reports. However, the two negative reactions were especially rough, with losses of 11.6% and 11.4%, respectively, in May 2016 and August 2015.

Right now, it appears the options market is predicting DSW Inc. will head higher after earnings. During the last 10 days at the ISE, CBOE, and PHLX, traders have bought to open 12.32 calls for every put -- a ratio that ranks near the top quartile of its annual range. What's more, the SOIR of 0.39 registers in the call-tilted 14th percentile of all readings from the past year.

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