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Perhaps Abercrombie & Fitch should try flogging its clothes to all of those fickle teens rather than just the cool ones after all. Exclusivity has long been a key part of the U.S. retailer's strategy. For years, that helped to sell a lot of ripped jeans and logoed polos, even if it resulted in perennial public relations snags. But lately it is Abercrombie itself that is looking a bit awkward.
In first-quarter results announced on Friday, total same-store sales declined 15 per cent, including a 14 per cent fall in Abercrombie's core domestic market. Revenues also fell 16 per cent internationally where the retailer expanded to boost growth in recent years. Issues with inventory were a big part of the problem. In the first quarter a year ago, Abercrombie ended up with piles of merchandise. It then had to unload all of that through deep discounting. That added to sales last year even though profits were badly affected.
Moreover, in the first quarter of this year, macroeconomic problems in Europe and cold spring weather were a further drag – as they were to some other U.S. retailers. (Ironically, it would have been great for Abercrombie to have had that cooler weather merchandise this year – you never have the right inventory at the right time!) Even as sales declined, gross profit was 720 basis points higher to 66 per cent. Abercrombie nonetheless cut its full-year guidance and predicted lower full-year sales.
Sales at Abercrombie had already been in a slump. The first quarter represented the fifth straight quarter of same-store sales declines. In addition to closing stores, costs are being cut. As part of a comprehensive review, Abercrombie said on Friday that it had identified annual savings of $35-million to $55-million in overhead costs, which should manifest next year.
Shares of Abercrombie tumbled 8 per cent on Friday. That takes the multiple to about 14 times forward earnings, not too different from other mall retailers such as Gap and American Eagle Outfitters. While cost cutting certainly helps, retail is about having the merchandise that people want. Abercrombie simply has to become cool again.
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