Sales Slump Continues For Abercrombie
Abercrombie & Fitch (NYSE:ANF) posted its third quarter earnings on November 18, missing the consensus estimates on both the sales and earnings.
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The third quarter was challenging for Abercrombie. While Hollister offered sequential improvement in the comparable sales, it was more than offset by the poor performance of the A&F brand. Hollister received a positive response to its product innovations. However, for A&F, the flagship and tourist locations continued to suffer as a result of poor traffic. Furthermore, the underperformance of seasonal categories in the brand forced a greater-than-planned promotional activity. The direct-to-consumer (DTC) business continues to grow, both domestically and internationally, with the segment accounting for 23% of the total sales in the quarter, up from 21% last year. Executive Chairman Arthur Martinez anticipates top-line headwinds to continue through the rest of the year, but, expects modest comp sales trend improvement in the fourth quarter.
The Abercrombie brand 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. 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 has also made attempts to remove its infamous logo from its merchandise. This follows from millennial consumers’ increasing preferences of clothing and accessories without labels or logos, according to a report by Goldman Sachs. The new marketing campaign celebrates individuality and uniqueness, in contrast to earlier ones which focused on exclusivity. However, it seems like the campaign has failed to resonate with consumers, and indicating that the brand’s problems run much deeper than just the foreign exchange and tourist traffic headwinds.
The efforts made by the company in its Hollister brand, to create an emotionally engaging brand experience, though, may be working. Based on the success of their previous store remodels, a further eight were completed in the quarter, with an additional 12 scheduled to open this week, bringing the total of remodeled Hollister stores to 64 this year. The Hollister Club Cali loyalty program, rolled out in the US last quarter, was met with enthusiasm by the customers, acquiring nearly four million active members, and driving increased sales.
The DTC business is the only one showing growth in the quarter. The investments made by the company in mobile are paying off, with a nearly 50% increase in sales from orders placed on mobile phones. After a successful roll-out of buy online, pickup in store, first in the UK, and then in the US, the service was rolled out in Canada. This feature continues to be popular, accounting for over 5% of all online orders.
The company is also aggressively pursuing the optimization of its store count. For the year, the company expects to close 50 stores in the US through natural lease expirations. The company also stated that approximately 50% of its 745 stores in the US are up for renewal over the next 18 months, giving the management the opportunity to continue with the store reductions. Over the last six years, the company has shuttered 350 stores, allowing the company to cut costs and free up cash.
Have more questions about Abercrombie & Fitch? See the links below:
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