Retailers American Eagle, Gap Inc., and Abercrombie & Fitch reported their November sales recently. American Eagle excelled again, Gap surprised, and Abercrombie disappointed. The fact that these three companies, operating in the same iffy consumer spending environment, had such different results shows that execution still matters. They're positioned in various ways now for the holiday season, so December's results will be interesting to watch.
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Retailers Gap Inc. (NYSE: GPS), American Eagle (Nasdaq: AEOS), and Abercrombie & Fitch (NYSE: ANF) all reported November sales results yesterday or today. American Eagle, which has been on fire compared to the other two for most of this year, had incredibly strong results. Gap's sales were better than expected, and Abercrombie's were worse than had been anticipated. (I own shares of both Abercrombie and Gap.) American Eagle does it again What's up at Gap Gap's comps for November were better than the company expected. They surprised me, too. Perhaps most encouraging is the news that comps at Gap's flagship branded Gap stores were actually positive in the mid-single-digit range. Old Navy was still something of a drag, but not as much as it has been in recent months. It should be noted that Old Navy's comps from last November were also negative. Gap started its holiday ad campaigns for its Gap line, GapKids line, and for Old Navy in November. It also managed to get its holiday line out and on the shelves during the month. The company is pushing bulky turtleneck sweaters (which I personally think are really cute) and the stores look great. The color mix looks good: no weird turquoises or orangey-reds! The company is still being cautious about the holiday season and its fourth quarter, which is understandable. The combination of the November results and what looks like a strong holiday line should encourage frustrated Gap investors. It's too soon to say Gap's gotten it right for the fourth quarter, and ongoing promotional activity will continue to hurt profits, but things could certainly be worse. Abercrombie stumbles What happened? It's hard to say. The company, which until this year didn't report monthly comps, said precious little in its recorded sales call. It did say that its women's line again fared better than its men's, which is a turn-around from the situation for most of the year and echoes the third quarter. Abercrombie didn't promote much in November, and said that its markdown percentage was much lower than it was last November. One possible answer can be found from the Abercrombie & Fitch discussion board. Long-time contributor JoniM wrote up some observations this morning. She pointed out that American Eagle, which many consider to be Abercrombie's main competitor, had a very warm holiday feel in its stores for November, while Abercrombie did nothing to change the feel of its stores. She also posted, yesterday, about the differences between Abercrombie's and American Eagle's in-store holiday promotions. To put it simply, American Eagle's promotions were well-positioned -- and it had several of them. Abercrombie didn't do similar things. Looking at the two company's vastly different comps results from November, the conclusions virtually draw themselves. Abercrombie says it's well positioned, inventory-wise, for the holiday season, but that may not be enough to guarantee success in such a competitive environment. The company also said it is comfortable with its previous fourth quarter guidance of $0.84 a share: Most analysts had hoped for a surprise of $0.85. Holiday caution We'll revisit these three in January, after they report their December sales, to try and measure how their fourth quarters are looking. Until then, go out to your local mall and see which stores are crowded, compare the appearances of the stores and their promotional activity, or ask your friends or your kids where they want presents from this year. After the disparity in results from November, what happens in December for these three retailers should be interesting.
American Eagle's runaway results for November point to a company that has figured out just what its customers want and wastes no time in giving it to them. American Eagle's total sales increased 33.7%, and its same-store sales (or "comps") grew by 13.4% on top of last year's strong 12.2% increase. Coming off of a third quarter where sales grew 27%, net income rose 20%, and earnings per share trampled estimates by $0.07, American Eagle looks positioned to have a great fourth quarter.
Gap's November, not surprisingly, wasn't as fantastic as American Eagle's. Gap's problems this year are well-known, and the multi-branded retailer is doing its best to get back on top. After a dismal third quarter, Gap's counting on a strong holiday presence to be its savior. For November, Gap's total sales were up 20%, with comps declined by 1%. Last November, Gap's comps grew by 1%. In its third quarter, comps were off 8%.
Then there's Abercrombie & Fitch. Also struggling this year to find its way, Abercrombie pulled off a solid third quarter. The company's managed its inventory tightly -- perhaps too tightly, as it ended up running out of some things, women's sweaters in particular. For the quarter, comps were off 3%. Given that it was around this time last year that Abercrombie started running into merchandising issues and seeing its comps soften (+4% for last November), many thought that this November, while still probably negative, would be closer to negative 2-3%. Comps came in at -8%. Abercrombie's stock is paying the price today, and was off 27% the last time I looked.
All three retailers expressed caution for their fourth quarters and the holiday season. No one wants to be too optimistic and then have consumers shy away from their stores. Customers this year may temper some of their holiday spending compared to last year, but it's still too early to say if that's the case one way or another. For American Eagle, the company again looks like a rock. Gap seems to be in a better position than many had imagined after its depressing third-quarter results. And Abercrombie followed up a solid quarter with a bad month. Although these three companies all play more or less the same game -- casual apparel retail -- that each of them had such different things to say heading into December illustrates one thing very clearly to me: That even in a difficult economic environment, execution still matters. It shows in the results.
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