Correction: This article has been amended to reflect that Abercrombie's management says the price hikes are for selected, new items, as opposed to an across-the-board price hike.
Abercrombie & Fitch (NYSE:ANF) handed over a mixed bag for investors on Tuesday. While fourth-quarter net sales were up -- an event many have been waiting for given the company's recent lagging sales and PR nightmares -- the company said in its conference call that it plans to up its prices on selected, new merchandise.
The retailer reported fourth-quarter earnings of $94.3 million, or $0.96 per share, as compared to earnings of $92.8 million, or $0.93 per share, for the same quarter one year ago. The company's net sales may have risen nearly 5% to $560.4 million, but same-store sales dropped 11%, a disturbing signal considering confidence is higher than it was last year.
When Foolish co-founder Tom Gardner performed an analysis of the pros and cons facing the company last month in Retail Bust or Quick Double?, he highlighted one particular roadblock to an Abercrombie comeback in same-store sales: management's decision not to lower the prices on its apparel. Now the company's come up with a completely opposing strategy.
Intense competition for the young adult's wallet has been evident in the struggles for many youth-oriented retailers. Both Abercrombie and American Eagle Outfitters (NASDAQ:AEOS) have suffered tough times, facing the likes of Aeropostale (NYSE:ARO) and Gap (NYSE:GPS), the latter of which has the lower-priced Old Navy unit to address young shoppers on a shoestring.
When Abercrombie reported dismal third-quarter numbers, Fool LouAnn Lofton discussed concerns about the company's strategy, including the idea that maybe it's lost touch with young adults altogether, given the success of retailers like Hot Topic (NASDAQ:HOTT), Pacific Sunwear (NASDAQ:PSUN), and Urban Outfitters (NASDAQ:URBN).
Abercrombie declared a dividend for shareholders, which is the kind of thing The Motley Fool's Income Investor subscribers rejoice in, and in fact, look for in a stock. But right now, it seems another way to assuage investors who might worry that Abercrombie will lose more and more "cool points" with its customer base. (Speaking of coolness, management sees the addition of pricier merchandise as a way to show Abercrombie's one of the "coolest" brands. Paying more can make people feel they are getting the better product, but considering recent problems, in Abercrombie's case, I don't quite buy it.)
Investors cheered the numbers this morning, with the stock recently up nearly 11%, but how long they will keep cheering remains to be seen. Some higher priced goods, should they prove popular, may boost sales numbers in the short term, but all bets are off as to whether the kids will pay higher prices for what they've shunned for so long.
Is Abercrombie about to make a huge mistake? Or is this move a good strategy? Talk it over with other Fools who hang out on the Abercrombie & Fitch discussion board.
Alyce Lomax does not own shares of any of the companies mentioned.
