For a brief while, it looked like Abercrombie & Fitch Co. (ANF) might actually be able to pick itself up off the mat, move past the Michael Jeffries-led implosion and regain at least some semblance of relevance with a committee rather than an individual at the helm.
In light of the teen-retailers’ first-quarter results posted on Thursday morning though, it’s clear there’s still a great deal of work to do.
Abercrombie is still in serious trouble, and by extension, owning ANF stock is significantly speculative.
And, in spite of the management team’s typical optimism, the biggest threat to Abercrombie stock remains the fact that consumers simply aren’t into its look, stores and premise any longer. There’s not a lot that executive chairman Arthur Martinez can actually do about that.
Abercrombie Q1 Earnings
As the old adage goes, numbers don’t lie.
Last quarter — the retailer’s first fiscal quarter of the year — Abercrombie & Fitch lost 59 cents per share on $685.5 million worth of revenue.
Both were worse than estimates for a loss of 51 cents per share of ANF stock, and a top line of $710 million. Revenue fell 3% on a year-over-year basis, while the loss rolled in at the same per-share operating loss booked in the comparable quarter of last year.
Same store sales fell 4%. Abercrombie stores open for at least a year saw an average revenue deterioration of 8%, while Hollister stores (the company’s only bright spot of late) posted flat same-store sales growth. Even then, total Hollister brand sales fell 2%, while the Abercrombie and Fitch brand’s total revenue tumbled 5%.
Executive Chairman Arthur Martinez commented:
“Our results for the quarter reflect significant traffic headwinds, particularly in international markets and in our U.S. flagship and tourist stores, resulting in negative comparable sales. However, in the face of these headwinds, we were encouraged by our U.S. business, where comparable sales improved in the Hollister brand, and gross margin rate increased meaningfully for both brands. Overall, our business remains well managed in these challenging times, with our assortment and customer-centricity efforts driving improved conversion, and expense and inventory well controlled.
We expect the second quarter to remain challenging, but to see better results in the back half of the year as our assortments continue to improve and we see returns from significant investments in marketing, store management and omnichannel. In addition, with the new brand presidents and other key roles now filled, we have a strong team in place to drive our brands forward and capitalize on the many opportunities we see ahead of us.”
After beginning what looks like will be a fourth straight year of waning sales and profits though, investors aren’t convinced. The 17% plunge Abercrombie stock made in response to the report makes that much clear.
As much blame as former CEO Michael Jeffries may have gotten for the Abercrombie meltdown, he’s now been gone for a year and a quarter, and the retailer is still struggling.
Perhaps he wasn’t the problem.
Indeed, he likely wasn’t the pinnacle problem for Abercrombie & Fitch. That honor belongs to a myriad of inter-related factors, consisting of online-shopping alternatives, so-called “fast fashion” and a simple transition of teen-fashion norms that are moving away from the preppy look to a more casual one.
And to the extent Abercrombie would become relevant in the modern era of consumerism again, there’s no real assurance the company’s leading committee is perfectly qualified to take it there.
Arthur Martinez was a heroic CEO for Sears Holdings Corp (SHLD) in the late 90’s, but not only are Sears and Abercrombie at the extreme opposite ends of the retailing spectrum, but he was a retail champion at a time when e-commerce barely existed, and before fast-fashion was even a concept.
The six other members of the leadership team all have a fair amount of retail experience, but little of it includes tween and young adult retailing.
Meanwhile, the average age of Abercrombie’s board members is around 70, with the youngest being 61. There may be a customer-relation problem in the ranks, making things difficult for the slightly younger six-person leadership team.
Bottom Line for ANF Stock
Whatever the right mix of product, leadership and marketing message is, Abercrombie & Fitch hasn’t found it yet. It’s time to start acknowledging though, that it may not be found … ever.
Not unlike Betamax machines, dial-up internet and camera film, there may well be a point in time when Abercrombie’s business model just becomes unmarketable. It’s increasingly looking like we’re at that point.
While there will likely always be an Abercrombie brand, this is a company that would be better served by a mercy killing so it can completely rebuild from scratch. Holding onto ANF stock in the meantime could be anguishing.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
