A Decline In Sales Is Expected To Continue In The Third Quarter For Abercrombie

Abercrombie & Fitch (NYSE:ANF), the one-time iconic teen retailer, has failed to keep up with the changing preferences among consumers, and has suffered as a result, plagued with a number of periods of declining sales. This trend is expected to continue in the third quarter, with an estimated sales decline of over 5%, and a fall in the earnings per share by more than one-half. In the second quarter, Abercrombie & Fitch 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. Lower traffic, particularly from tourists, can be primarily blamed for this. Moreover, the company has struggled to compete with fast-fashion brands, such as Zara and H&M. 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.

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The brand has in the recent past faced criticism for employing model-worthy staff in its stores, and by giving the impression it just wants good looking people to wear its clothes. A&F’s effort to rebrand its image came after the backlash it faced once a lawsuit was filed against the company by a Muslim woman who claimed the company refused to hire her because she wore a traditional head scarf. The company also scored the lowest on American Customer Satisfaction Index for the retail industry, with a score of 65, almost 10 points below the entire sector’s overall score. The company has undertaken a massive rebranding initiative after parting ways with its former CEO Michael Jeffries in late 2014, to move away from the reputation it had built in the last decade, because of which the company was also voted the most hated retail brand in February of this year. However, the company is taking efforts to reinvent itself, which was reflected in its men’s lineup, which fused its roots as a hunting and fishing store, with a more contemporary style. Aaron Levine, who joined the company last year as the head of men’s design, had a major role to play in this.

The company is also delving deeper into the Middle East in search for growth. Following the success of its first store in Dubai, the company opened several more in the region, and the count now totals eight, with six in Dubai and two in Kuwait. As per Arthur Martinez, chairman of Abercrombie & Fitch, while the company does not have a firm plan in place, it would not be a surprise if the store count doubled in the next three to five years. The company expects to open its first store in Qatar in the first quarter of 2017, and in the Kingdom of Saudi Arabia in the second half of 2017, with plans to open even in Bahrain and Oman. The majority of the company’s stores in the area are under the Hollister brand, with two Abercrombie & Fitch outlets in Kuwait and one in Dubai. Significant growth is expected from the region through the company’s target market – teenagers and consumers in their 20s, as there is a fairly large young population. While Hollister appeals primarily to teenagers, the Abercrombie & Fitch brand has been trying to push its target market towards the older segment of those in the 20 to 29 age range. This certainly seems like an attractive opportunity, as the company has been struggling with its performance in the domestic market. While it is clearly not a doubt that the company has too many stores in the US, where it has been closing its stores aggressively, the brand has room to grow internationally.

The only source of revenue growth for the company in recent times has been its DTC (Direct-To-Consumer) segment. The revenues from this segment have grown to contribute to 23% of the total sales in the second quarter, as compared to 21% in the previous year. Amid a dismal second quarter, the apparel manufacturer’s only promising trend was its direct business, which includes web transactions and sales placed online within a store. While overall sales fell 4.2% in the second quarter, its DTC sales increased 4.9%. ANF is focusing on its mobile and omni-channel capabilities, which saw strong growth, both in the domestic and the international markets. Sales through mobile orders jumped nearly 60%, and their recent initiative of buy online, pickup in store, accounted for 7% of all online orders. The retailer already offers this option in the US and the UK, and planned to roll it out in Canada in the third quarter.

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

• Abercrombie Revamps Brand To Attract Customers
• Abercrombie & Fitch’s Direct Business Is Its Only Beacon Of Hope
• Abercrombie & Fitch Looks To The Middle East For Growth
• How Will Abercrombie & Fitch Perform In 2016?
• Why Has Abercrombie’s Stock Price Fallen 25% In The Last Week?
• Bleak Outlook Causes Abercrombie & Fitch’s Stock To Plummet 20%
• How Will Abercrombie & Fitch Perform In Q2 2016?
• What Does Abercrombie’s Deal With Online Retailer Zalando Mean?
• How Has Abercrombie & Fitch’s Revenue By Geography Changed Over The Last Three Years?
• Abercrombie & Fitch Plans Changes To Turn Their Business Around
• Who Relies On Debt More; Gap Inc or Abercrombie & Fitch?
• What Is Abercrombie & Fitch’s Revenue & Earnings Breakdown In Terms of Different Operating Segments?
• What Is Abercrombie & Fitch’s Fundamental Value Based On Expected 2015 Results?
• How Has Abercrombie & Fitch’s Revenue Composition Changed In The Last Five Years?
• By How Much have Abercrombie & Fitch’s Revenues & Earnings Grown In The Last Five Years?

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