Low consumer confidence and cold weather affected sales for apparel retailers. These retailers are finding it extremely difficult to attract customers to their stores. Moreover, people are finding it easier to shop online rather than walk up to the stores. As a result, apparel retailers have resorted to strategies such as increased marketing and new products to lure customers to stores.
Industry Players in Jeopardy
A typical example here is that of American Eagle Outfitters (NYSE:AEO) which is finding it difficult to survive in such a tough environment where demand is low. The teen retailer announced in January that its same store sales dropped by 7% during the holiday season. Also, it lowered its earnings outlook to the lower end of the guidance range, at $0.26 per share. This is mainly because the company was unable to attract customers to its stores as traffic declined 14.6% during the holiday season, much higher than 1.4% drop estimated by ShopperTrak.
- Warning! GuruFocus has detected 1 Warning Sign with AEO. Click here to check it out.
- AEO 15-Year Financial Data
- The intrinsic value of AEO
- Peter Lynch Chart of AEO
Moreover, American Eagle’s products failed to resonate with customers since it had limited fashion variety and was not according to changing tastes of consumers. However, the retailer plans to focus on its online business which has been growing from the last few quarters and had grown 17% in its third quarter.
Even peer Abercrombie & Fitch (NYSE:ANF) registered declining sales and net income in its recently reported fourth quarter. Revenue dropped 12% to $1.3 billion, whereas analysts were expecting it at $1.36 billion. Adjusted earnings also plunged to $1.34 per share from $1.95 per share a year ago. The company is having a tough time as customers are losing interest in its products. Also, the retailer’s Gilly Hicks business has become defunct and Abercrombie has been closing its stores. This has led to higher restructuring costs weighing on the apparel company’s earnings. However, the company has taken cost cutting measures which should help its bottom line grow. Also, Abercrombie & Fitch plans to expand its e-commerce business which should result in a higher top line. Therefore, Gap is in a much better position as compared to its industry peers.
On the other hand, another retailer, Gap (NYSE:GPS), has been an exception. The company is making a number of interesting moves and is able to attract customers to its stores. In fact, its recent quarter was not as bad as its peers and it registered a same store sales growth of 1% over last year’s quarter. Growth in sales was driven by higher promotions and growing network of stores. Another point of focus for Gap is the online business which grew by 15.9% during the quarter. It will also be introducing websites in China and Japan, thereby expanding its e-commerce business further.
The fashion retail industry is undergoing a difficult phase with most of the players finding it difficult to sell its products. Hence, one should be cautious before getting into any of them. However, players such as Gap are using a large number of initiatives to overcome the prevailing problems. Therefore, Gap should be a rewarding investment among these.