Why Has Abercrombie’s Stock Price Fallen 25% In The Last Week?

September 9th, 2016 by Trefis Team
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ANF: Abercrombie & Fitch logo
ANF
Abercrombie & Fitch

Abercrombie & Fitch released its second quarter results on August 30th, and posted its 14th consecutive quarter of declining sales, while at the same time saying the comparable sales will remain challenging for the remainder of the year as well. This is a swift about turn from the forecast the company issued in May, when it expected results to improve in the second half of the year.

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Lower traffic, particularly from tourists can be primarily blamed for this. Their favored clientele are now moving to fast fashion brands such as Forever 21, Zara, and H&M. While the company has made attempts to cut down its pricing, its clothes are still considered more expensive than the aforementioned companies, which have shortened their runway to shelf turnover time to enable them to offer their products at lower prices. The company has, thus, struggled to compete with these brands. While Abercrombie has attempted to convert Hollister into a fast-fashion house, by hiring designers to keep up with the trends, and shifting away from the logo-centric designs, the comparable sales for the brand fell in the quarter, after a flat performance in the first quarter.

See our complete analysis for Abercrombie & Fitch

To win back shoppers, the company is investing in its online platform, which is the only segment performing well for the company, both domestically and internationally. Its DTC (direct to consumer) channel now contributes 23% of the company’s revenue, as compared to 21% last year. Sales through mobile orders jumped nearly 60%, and their recent initiative of buy online and pickup in a store, accounted for 7% of all online orders. The company also announced a partnership with online retail platform Zalando recently, Europe’s largest online platform for fashion. For Abercrombie to be able to get access to Zalando’s almost 19 million active users, who are regularly engaged through Zalando’s email marketing, will be immense. Furthermore, since every sale through this website will be additional revenue, without any fixed costs associated, it may have a positive impact on the margins. The company is also not that heavily present in the continent, and hence, a presence on the website will not result in cannibalization. In the past as well, wholesale arrangements with online retailers such as Next plc and Asos Plc in the United Kingdom have resulted in increased revenue, with $10 million additional sales in the year 2015.

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Have more questions about Abercrombie & Fitch? See the links below:

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Abercrombie & Fitch
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