The retail industry broadly has faced its share of headwinds over the past dozen years. The Great Recession sapped consumers' enjoyment in conspicuous consumption, and midrange and premium brands lost a fair amount of their appeal.
In this segment from MarketFoolery, host Chris Hill and senior analyst Seth Jayson consider how those ongoing trends are hitting Abercrombie & Fitch (NYSE:ANF), which delivered weak comps for the first quarter on Wednesday, and -- perhaps more concerning -- said it was closing three of its flagship stores.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on May 29, 2019.
Chris Hill: Let's transition to Abercrombie & Fitch. As you said, similar story, at least in terms of the stock, the stock down about 24%.
Seth Jayson: They would kill for 25% revenue growth right now, however.
Hill: [laughs] Yes. First-quarter same-store sales were weak. The thing that struck me was, they're closing three of their flagship stores -- one in New York, one in Italy, one in Japan.
Jayson: That's some expensive real estate, but usually they keep the flagships and get rid of the lousier mall positions. But maybe they've already gotten rid of all those?
Hill: And that's what makes me think -- look, this is not the first time on this show, probably not the last time on this show, that we've talked about Abercrombie's earnings and the resulting stock drop of 15% or more. But this is the first time that I've been struck by the store closings. Even when they've had quarters where they struggled, the flagship stores have done pretty well. Yes, it's expensive real estate. But the fact that they've made the decision to close -- the one in New York is a Hollister store, because Abercrombie & Fitch owns the Hollister brand --
Jayson: Everyone in New York loves to pretend that they're California beach people, which is the fake Hollister story, right?
Hill: I guess. I don't know, in some ways, this seems worse to me than what we just talked about with Canada Goose.
Jayson: Yeah, I think Abercrombie survived their near death, but brands that are in the middle of that consumer price range -- Abercrombie, remember, used to be higher-priced, and then you had American Eagle at the lower end. And then 2009 hit, and nobody could sell anything. People didn't care so much about spending $80 or $90 or $110 bucks, whatever it was, at the time, on jeans with a label. What happened after that, in my opinion as somebody who held a lot of retail stocks and stunk it up, is that for the core audience for some of these brands, not spending, not doing the conspicuous consumption thing, became more fashionable, more acceptable. And I think they've all struggled since. The lower-priced places have done better. So, you had your Zaras, your H&Ms, they took a lot of the business that used to go to these premium brands.
Abercrombie seemed to have recovered from that. But this 1%-ish growth, which to me is really just flat, suggests to me that there's not a whole lot left here. It's not somewhere where I would put my money, even after a 25% drop today. I'd rather own the scary Canada Goose, which maybe has an intact growth story, than something that clearly doesn't have a growth story and clearly isn't a value.