Sales Slide Continues For Abercrombie

Abercrombie & Fitch (NYSE:ANF) reported a decline in sales and earnings in its first quarter, in line with the company’s expectations. The sales fall of 3.6% beat expectations, but the earnings decline to -$0.91 missed by 21 cents. Comparable sales fell to 3%, topping the expectations of a decrease of 3.6%, helped on by the outperformance of Hollister, which increased its comps by 3%. However, the namesake brand, Abercrombie, continued its free-fall, with comps plummeting 10%. A promotional environment and store traffic headwinds are an industry-wide headache, and ANF was no exception. Excessive discounting wreaked havoc on the gross margins, which were 130 basis points lower than in the corresponding quarter last year. Meanwhile, reduced store traffic necessitates the existence of a seamless omni-channel presence. In this regard, ANF has undertaken substantial effort and investment, which seems to be paying off, as DTC (Direct-to-Consumer) revenues increased to constitute 27% of the total revenues, up from 24% in the first quarter of last year.

Focus On DTC Channel

Amidst the news that Abercrombie is fielding takeover interest from prospective buyers, including American Eagle, CEO Fran Horowitz is looking to fix the company’s operations. One avenue of long-term growth is the company’s online business. A fundamental shift from brick-and-mortar to the online platform is evident, and retail companies have to embrace this trend in order to be relevant. Keeping this in mind, ANF has integrated its abercrombie and kids websites, and optimized it for mobile, payment, and tracking. The full omni-channel offering has been rolled out in the US, Canada, and the UK, with plans to roll-out internationally through the remainder of 2017. The focus on its digital presence has been appreciated, with Abercrombie coming in at fourth in a ranking of 100 publicly traded retailers having an omni-channel presence, conducted by Total Retail.

On a more sobering note, A&F’s sales slide has continued, with the brand struggling to attract customers. It has not been able to overcome the challenges posed by the apparel market, which has resulted in a slower than expected progress of the brand revitalization plans. The company’s flagship and tourist stores weighed heavily on the results, as a result of the persisting traffic headwinds.

More Store Closures To Come

In 2017, the company expects to close approximately 60 stores in the US through natural lease expirations. Additionally, with about 50% of the US leases expiring by the end of FY 2018, the company has significant flexibility to strike the right store count balance, and drive efficiency by remodeling or resizing the stores, renegotiating leases, or shuttering down. This closure follows the 53 other shops that were shut in FY 2016, and the many others closed in the years prior. In theory, the company’s comparable sales should show an improvement when the unprofitable stores are closed down. However, in the past at least, such closures have not resulted in an improvement in sales.

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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