NEWSWIRE - October 18, 1999

Source: "Abercrombie & Fitch Ignites Controversy Over Possible Leak of Sluggish Sales Data," by Susan Pulliam, Wall Street Journal, Thursday, October 14, 1999, page C1.

Synopsis of Article: On Wednesday, October 13, 1999, Abercrombie & Fitch (Ticker: ANF) announced an increase in same-store sales of 12% compared with the same quarter last year. However, security analysts expected an increase in the 15% to 17% range. This lower than expected growth in sales caused analysts and investors to lower their intrinsic value of the security by about 19% during the day. However, the more important issue that is raised regards the method used to release the information, not the content. It appears that several analysts received the news several days before the general investing public. Furthermore, the firm's management also issued a press release declaring that there were no major changes in sales trends. As a result, a small group of high net worth clients was able to trade on the upcoming news release prior to the official disclosure of disappointing sales. This raises questions regarding the overall informational efficiency of stock markets as well as methods used to value stocks.

DISCUSSION QUESTIONS:

1. Although Abercrombie & Fitch announced same-sales growth of 12%, their stock price fell by 19%. Why?
2. What are the three forms of the efficient markets hypothesis, or EMH? Given the series of disclosures in the article, which form of the EMH best explains the market for Abercrombie & Fitch stock?
3. Abercrombie & Fitch does not pay a dividend. How could you value such a security?

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