Improvement In Hollister May Not Be Enough To Drive Sales Growth For Abercrombie

Abercrombie & Fitch (NYSE:ANF) is set to report its first quarter results (three months ended April 2017) on May 25, 2017. It is expected to be a tough quarter for the company, with its earnings and revenue expected to be sharply down from the same quarter last year. Abercrombie’s bleak outlook for the first half of FY 2017 also does not inspire any confidence. The company expects the comparable sales to remain challenging, with a modest improvement expected in the second half of the year. The gross margin rate is expected to remain pressured as a result of increased promotional activities in the first quarter.

Takeover On The Cards?

Apparel retailer Abercrombie & Fitch is working with an investment bank to deal with takeover interest, according to a news release by the company. With the company’s shares trading at a 17-year low, the time for a buyout may be ripe. The poor performance of its share price reflects the poor sales and earnings generated by the company of late. During 2016, the stock price plummeted 56% to end the year at $12. The company’s stock price has risen considerably in the aftermath of this news surfacing.

The once iconic teen retailer has failed to keep up with changing preferences among customers, and has suffered as a result, plagued with a number of periods of declining sales. The company scored the lowest on the American Customer Satisfaction Index for the retail industry, with a score of 65, almost 10 points below the entire sector’s overall score. Abercrombie has undertaken a bevy of changes to turn around its fortunes and to revamp its image. However, these efforts may still not be enough to turn the company around, due to the general macroeconomic weakness, and the current soft state of the retail industry. The company also faces competition from fast-fashion retailers, such as Zara and H&M. These brands are able to move styles from the runway to the stores within weeks, constantly evolving their assortment and keeping their products fresh. Abercrombie is working on its speed to market, and in this regard, it augmented its fulfillment capabilities to the West Coast with a third-party facility, to better service customers in that region of the country.

Improved Performance Of Hollister

Hollister performed well for the company in the last reported quarter despite a challenging retail environment, a trend which is expected to continue in the first quarter as well. However, for Abercrombie, the brand has not been able to overcome the challenges posed by the apparel market, which is expected to result in a slower than expected progress of the brand revitalization plans. The company’s flagship and tourist stores are anticipated to weigh heavily on the results, as a result of the persisting traffic headwinds.

The direct-to-consumer (DTC) segment is also expected to deliver growth, fueled by the company’s investments in mobile, omni-channel, and fulfillment. On a total company basis, the DTC business accounted for 31% of the sales in Q4 2016, as compared to 28% in the corresponding prior year period. The purchase online, and pick up in store initiative was rolled out across stores in the US and Canada in the fourth quarter, following a successful rollout in the UK, and this is expected to carry on its strong sequential growth.

See our complete analysis for Abercrombie & Fitch

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

• Can 2017 Be A Good Year For Retail Stocks?
• Part 2: Is There A Way Out Of The Rut For Brick And Mortar Stores
• Retailing Conundrum, Part 1: Is There A Way Out Of The Rut For Brick And Mortar Stores?
• Abercrombie & Fitch’s Direct Business Is Its Only Beacon Of Hope

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