After a short lived rally at the back end of its previous fiscal year, US apparel group Abercrombie & Fitch is now firmly back in negative territory with a weak set of sales figures at both the total and comparable level.
It is particularly disappointing that sales growth has deteriorated since the prior quarter with much worse comparable numbers coming through for the US market.
Once again, Abercrombie led the way with a decline of 7 per cent in same store terms; Hollister fared a little better but also slipped into negative territory with a comparable sales slide of 2 per cent. In the US both brands suffered from weaker traffic to malls and from lower tourist spend at flagship stores in key locations. This was offset, in part, by a more robust performance from the online channel which continues to show signs of life.
Thanks to tighter inventory control, discounting was not particularly pronounced across the period which allowed A&F to produce a stronger margin outcome than might otherwise have been the case. Even so, higher product costs, relatively higher store and distribution expenses – which include the impact of lower margin eCommerce orders – and an asset impairment charge all helped push the company to an operating loss of US$10.8 million over the period. This is a marked deterioration on last year’s profit of $1.9 million.
As disappointing as these numbers are, they are not entirely unexpected. The second quarter was expected to be fairly weak before a slight recovery of fortunes during the fall and winter seasons when stronger ranges should help drive more consumer interest. Since the previous update, however, the dollar has strengthened and this will take some of the edge of both sales growth and the profit line across the remainder of this year.
As much as A&F is still in a period of correction, the company continues to move in the right direction. The decision to shutter 60 stores in the US over the course of this fiscal year reflects the changing dynamics of shopper behavior and will reduce A&F’s exposure to weaker malls and retail centres. The company’s emphasis on eCommerce will ensure that some of these sales are recouped.
The company’s efforts around eCommerce are not just confined to the US. In Europe A&F’s new partnership with Zalando is encouraging, allowing it to bolster volumes and sales across Europe in a cost effective way. This gives the company and its brand extensive reach without the associated costs of opening and operating a vast number of stores.
All that said, A&F still has much work before its brands are restored to full health. Its new ranges are better and much more appealing to core customers as well as a slightly older demographic. However, the brands still need a stronger sense of identity and focus in what remains a very crowded and competitive marketplace.
