News Column

Abercrombie & Fitch Takes a Tumble

August 23, 2013

Shares of Abercrombie & Fitch plummeted by more than 17 percent in morning trading after the New Albany-based retailer announced a drop in comparable-store sales for the second quarter, a far worse performance than Wall Street expected.

Abercrombie reported sales for the quarter of $945.7 million, down from $951.4 million for the same quarter in 2012. Net income was $11.4 million, or 14 cents per share, down from last year's net income of $17.1 million and 20 cents per share.

Comparable-store sales -- a key indicator of a retailer's health -- fell by 10 percent, far below analysts' expectations of a 2.5 percent drop.

Abercrombie officials attributed the disappointing performance to fewer shoppers hitting malls during the summer, a common complaint among retailers reporting their quarterly earnings this week.

"The second quarter was more difficult than expected due to weaker traffic and continued softness in the female business, consistent with what others have reported," said Mike Jeffries, CEO and chairman of Abercrombie. "In that context we are planning sales, inventory and expenses conservatively for the remainder of the year."

The struggles in the second quarter come after a disappointing first quarter, which Abercrombie officials had blamed on inventory issues.

Of particular concern to analysts in the second-quarter report was an admission by Abercrombie officials that "something is going on with younger customers in the U.S."

Only a few days ago, BMO Capital Markets analyst John Morris wrote in a note to clients that Hollister "is re-emerging as a destination among teens."

But in the quarterly report, the worst comparable-store sales performance was at Hollister Co., the mall-based surf-themed chain that offers lower prices than Abercrombie's namesake stores and thus gets more traffic among teens. During the second quarter, comparable-store sales at Hollister fell by 13 percent, while such sales at Abercrombie fell 6 percent.

"One generation of customers has moved on and the next generation doesn't see Abercrombie as cool," Erik Gordon, a professor at the University of Michigan's Ross School of Business, told Reuters

Based on the poor report, Abercrombie projects that third-quarter earnings will be between 40 cents and 45 cents per share, far less than analysts' previous expectations of $1.06 per share. The company also would not provide an estimate beyond the third quarter, "due to a lack of visibility given recent traffic trends."


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