Abercrombie & Fitch didn't have the merriest holiday season, as same-store sales declined dramatically. Competitor American Eagle, meanwhile, rocked -- and probably stole some of Abercrombie's business. While certainly the retailing environment hasn't been the most welcoming, the problems that continue plaguing Abercrombie are partly its own. It says it is "well-positioned" for spring, but until the company addresses more of its problems in an effective way, one Fool remains skeptical.
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The holidays weren't as happy and bright as the folks at casual apparel retailer Abercrombie & Fitch (NYSE: ANF) had hoped they would be. The company, which I own, continues to struggle like a fish swimming upstream. Flopping and flipping, out of the water and back into it, Abercrombie just can't quite seem to get any sustainable traction. December details Those November comps sent the stock on a one-day spill, hacking off about 27% on Nov. 30. Shares of Abercrombie are up today about 14%, though. I guess investors expected even worse than what was reported by the retailer. (Shares are still below where they were before the announcement of November's comps.) December will drag down Abercrombie's whole fourth quarter, which ends in January. The company said it expects to earn $0.73 to $0.75 per share in Q4, just meeting or slightly surpassing last year's $0.73. Analysts were looking for $0.82. Causes for the comps decline Abercrombie found itself unable to generate the store traffic it hoped for -- and needed -- to have a stellar holiday season. The company also attributed its slim profit growth to the "promotional" holiday environment, which meant Abercrombie had to mark down its clothes more than it had expected. COO Seth Johnson said on a conference call that Abercrombie's average selling price was down 15% compared to last year. (That shouldn't come as a complete surprise, as the company planned to lower its prices for both the men's and women's lines during the fall season. And growth in traffic/sales might have given the company the volume needed to maintain profit margins even with prices down.) American Eagle's hot Retailers have been struggling all year in the face of high gasoline prices and waning consumer confidence, but for Abercrombie the problems that keep popping up seem to be, at least in part, continuing internal issues. The merchandising and fashion errors that pulled the stock to deep lows in 2000 haven't been resolved, and neither have its inventory problems. In the company's most recently completed quarter, it actually ran out of some popular items -- something that has happened to Abercrombie before. While it's certainly great that people want your stuff so much that it sells out, too much of that isn't a good thing if it cancels out sales opportunities. Just as sloppy inventory management is undesirable, so is inventory management that is too tight. Looking on to spring
Abercrombie's total December sales were up 12% over last year's. The company's comps, though, decreased a big, fat 11% compared to last year's 1% gain. Ouch. This comes after a November that had surprisingly bad comps, down 8%.
What happened in December that hurt Abercrombie? Well, its men's line underperformed the women's line, for starters. This is beginning to seem like a see-saw for Abercrombie. For much of the year they failed to capture the fancy (and shopping dollars) of female customers. In their third quarter, and in the month of November, they managed to figure out how to lure the girls back, but now guys seem to be the troublespot.
Competitor and near-look-alike American Eagle (Nasdaq: AEOS), meanwhile, smoked Abercrombie last month, as it did in November. In December, American Eagle's total sales increased 45.1% and its comps improved by 11.8%. Comps in December 1999 increased by 5.8%. Lower price points even before discounting and heightened in-store promotions for the holidays pulled American Eagle through, and most likely took away some traffic from Abercrombie.
Abercrombie, of course, says it is "well-positioned" for the spring season -- but the company said the exact same thing about the holiday shopping season. Investors interested in further signs that Abercrombie's encouraging turnaround is still chugging along, rather than stopping and starting, should keep watching. Abercrombie must re-focus some on its men's line, strive to maintain momentum in women's apparel, and continue improving its inventory management before the company can once again look down upon a vanquished casual apparel landscape.
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