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As we pull into July and August, Abercrombie & Fitch (NYSE: ANF) shareholders are keeping their eyes peeled for two things that may help their ailing stock price. Recent topics on the Abercrombie discussion board have been the back-to-school shopping season and the impending opening of a new brand under the Abercrombie umbrella.
Back to school should be cool
What excites posters about back to school, aside from the assumption that back-to- school shoppers will boost sales, is the possibility that Abercrombie may be able to correct some recent fashion missteps with its new fall line of clothes. Management has acknowledged that it misjudged what type of clothing young women wanted in the last couple of seasons, not offering "feminine" enough looks. The company has assured both the investment community and its customers that the fall line will offer just what young women and the back-to-school crowd want.
Shareholders can only hope this is true. Same-store sales (or "comps") for the company so far this year have been absolutely dismal. Comps for its first quarter were down 8%, and for May, comps were down 14%. Granted, Abercrombie faced a tough comparison from its first quarter last year, but the trend in negative comps here is what matters.
The June numbers are out tomorrow, and early indications don't seem positive. In fact, the company warned back on June 12 that it sees continued negative comps results in the coming months, but claims this will not affect earnings for fiscal 2000. Abercrombie needs to find its way, and quick, if shareholders are to continue believing in the vision of management.
Will surf and skate clothing work for Abercrombie?
As a part of that vision, the company has plans to open an entirely new line of stores beginning this month. The new stores will look and feel nothing like the current Abercrombie & Fitch stores. Dubbed "Hollister," the new venture will sell surf and skate inspired clothing. Posters on the Abercrombie board are fired up at the prospect of this new brand and the opportunities it gives the company.
The most direct comparison here seems to be Pacific Sunwear (Nasdaq: PSUN). Pacific Sunwear sells its own brand of "West Coast lifestyle" clothes, as well as traditional surf and skate brands like Rusty, Billabong, Quicksilver, Etnies, and Vans. As of June 7, 2000, Pacific Sunwear operated 520 stores in 48 states.
Can Abercrombie compete effectively in this space by building a brand from the ground up? I'm skeptical. Brands like Quicksilver and Rusty are already entrenched in the minds of the kids who will most likely be the targeted customers for Hollister. Also, for a company that has flubbed with its central brand by stocking clothes that proved to be "wrong," keeping up with an even trendier market will prove a challenge. Most board participants appear to disagree with my thinking, and are very optimistic about Hollister, perhaps feeling that this is just what the company needs to get it out of a rut.
The company can't afford to neglect its main brand
Abercrombie shareholders should attach more value to the new fall clothing line and the back-to-school season as opposed to the rollout of the Hollister brand. If Abercrombie fails to capture the fancies of shoppers in the Abercrombie & Fitch stores across America again, even more trouble could be ahead for the retailer. It doesn't seem likely that the Hollister brand will come in and save the day for Abercrombie -- at least not yet. The company needs to fix the fashion problems with the Abercrombie brand and start getting back into positive comps numbers before shareholders can really get excited about Hollister.
Your Turn:
Disagree? Do you think Hollister will be a success in no time? What happens if Abercrombie doesn't get its fall line right? Talk to other Fools on the Abercrombie board.
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