Abercrombie & Fitch Surprises With Better-Than-Expected Holiday Sales

January 15th, 2014 by Trefis Team
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ANF: Abercrombie & Fitch logo
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Abercrombie & Fitch

Although Abercrombie & Fitch (NYSE:ANF) struggled through most of last year, the holiday season wasn’t as bad as expected. The company recently provided a business update stating that its comparable sales in the U.S. in November and December declined by only 6%, which was much better-than-expected. Abercrombie also increased its EPS guidance for the full year from $1.40-$1.50 to $1.55-$1.65. [1] The company’s shares have gone up by almost 8% since this news came out.

Abercrombie will be encouraged by these results given that the holiday season wasn’t particularly good for U.S. apparel retailers. There was a significant decline in foot traffic due to cautious consumer spending and extreme weather conditions. However, this decline somewhat complemented the rise in web traffic, as buyers stayed home and bought online. This boosted Abercrombie’s e-commerce sales and provided it with some resilience against the industry weakness.

Although the company is still far from a complete turnaround in its business, it has started well. It will be interesting to see if its comparable sales can continue to improve in January.

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Our price estimate for Abercrombie & Fitch stands at $37.62, implying a premium of about 5% to the market price.

See our complete analysis for Abercrombie & Fitch

U.S. Holiday Season Was Marked By Sharp Traffic Decline

Pressured by the sluggish economic environment, U.S. buyers were extremely cautious about spending last year. This was clearly visible in the recently concluded holiday season as the U.S. retail industry saw its weakest growth since 2009. Moreover, extreme weather conditions prevented buyers from completing their shopping. As a result, U.S. foot traffic declined by 19.9% for the week ended on December 15, and 21% for the week through to December 22. [2] [3] ShopperTrak had also predicted 10% fewer customers for Christmas 2013 as compared to the same holiday last year.

Overall, foot traffic during the holiday season decreased by a staggering 14.6%, which was significantly higher than ShopperTrak’s prediction of 1.4% decline. [4] Moreover, while U.S. buyers spent freely on electronics, furniture and building materials, they were hesitant to spend on clothing. According to a Reuters poll conducted before the holiday season, about 27% of the consumers were planning to lower their spending on apparel this holiday season. [5] Therefore, it is quite clear that 2013 holiday season wasn’t the best one for apparel retailers.

Rise In Online Sales Helped Abercrombie Offset The Impact Of Traffic Decline

While store traffic was substantially down as compared to last year, holiday retail sales in the U.S. managed a modest growth of 2.7% primarily driven by a surge in online orders. This is evident from the fact that United Parcel Service (NYSE:UPS), which is one of the biggest players in retail e-commerce delivery, struggled to ship orders before Christmas. [6]. Retailers who manage to attract significant web traffic enjoyed this trend, while those who don’t, struggled.

Although e-commerce isn’t the biggest business for Abercrombie, it did help the company offset the impact of low store traffic. The retailer’s direct-to-consumer sales increased by 25% during the months of November and December. Interestingly, total online sales accounted for 25% of Abercrombie’s revenues in December, while this figure is usually around 16%. [1] This is a very encouraging scenario for the company that can boost its recovery process. Going forward, Abercrombie should leverage the strength in its e-commerce channel to take advantage of the online retail boom. Alongside, it needs to enhance its speed-to-market to provide fashion relevant products in a timely manner, and keep its inventory under control.

See More at Trefis | View Interactive S&P Capital IQ Analyses

Notes:
  1. Abercrombie & Fitch Provides Fourth Quarter Update Increases Full Year Guidance, Abercrombie & Fitch, Jan 9 2014 [↩] [↩]
  2. Retail Sales, Traffic Decreased Last Week, Says ShopperTrak, ShopperTrak, Dec 11 2013 [↩]
  3. U.S. Store Traffic Sinks 21% as Last-Ditch Deals Flop, Bloomberg, Dec 25 2013 [↩]
  4. U.S. retail sales up 2.7% in 2013 holiday season: ShopperTrak, The Economic Times, Jan 8 2014 [↩]
  5. U.S. holiday sales expected to rise less than last year: ShopperTrak, Reuters, Sept 17 2013 [↩]
  6. Behind UPS’s Christmas Eve Snafu, The Wall Street Journal, Dec 26 2013 [↩]