Abercrombie & Fitch (NYSE:ANF) has performed brilliantly this year. It was suffering badly in 2013, but it has jumped in 2014. Abercrombie has outperformed its competitors by a huge margin. Its results have been impressive and the turnaround strategies look promising, so it appears that Abercrombie might continue its excellent performance in the future as well.
Abercrombie outperformed in the quarter. Its sales dropped 1.9% year-over-year to $822.4 million which exceeded the analysts' estimates of $796 million. Further, Abercrombie reported a loss $0.17 per share for the quarter less than the consensus estimate of $0.19 per share.
Moreover, Abercrombie performed ahead of the American Eagle and Aeropostale, which reported a decline in sales by much larger amounts in their respective quarters. The retailer is executing several strategic initiatives to turnaround its business and return to profitability.
- Warning! GuruFocus has detected 4 Warning Signs with ANF. Click here to check it out.
- ANF 15-Year Financial Data
- The intrinsic value of ANF
- Peter Lynch Chart of ANF
Abercrombie’s target customers are the teens. But, they are falling short of money owing to a challenging economic environment. In addition, there’s losing interest of teens in logo-centric clothes coupled with the advent of online shopping that has also led to a change in shopping behavior.
Abercrombie is also on a lookout for growth abroad, particularly in Asia. It has doubled its presence in Asia by opening its new A&F flagship store in Shanghai. The new store has received overwhelming response from customers as illustrated by the fact that it added over 30,000 new Weibo followers post opening.
Abercrombie is planning to open four additional stores in China this year with its Hollister stores in China doing brilliantly. The direct-to-consumer business is also gaining a considerable traction in China.
The other international markets of Abercrombie are also performing excellently. The sales volumes at its Japanese Hollister stores exceeded the expectations as compared to the previous quarter. Now, the company plans to open two additional stores in Japan with significant growth opportunity in line.
Abercrombie also entered the Middle East with its first Hollister store in Dubai. Actually, this store experienced the highest Hollister volume globally. Therefore, Abercrombie is looking forward to open more stores in the Middle East after such an encouraging performance.
Abercrombie has increased its focus on marketing to improve its performance further. It has decided to open Hollister House, which is the main part of its new Hollister marketing campaign. This new concept is believed to support major digital marketing campaigns across multiple platforms.
The company also plans to increase brand engagement through further investment in its stores. The test stores of the company are delivering robust performance.
Better than competition
Abercrombie appears to be placing itself ahead of its peers on the back of such strong strategies. As seen above, the decline in revenue was only marginal on a year-over-year basis. Comparatively, the sales for Aeropostale declined 12% on a year over year basis, whereas the top line of American Eagle dropped 5%. Moreover, Aeropostale has decided to close a massive 125 P.S. stores for the year owing to the course correction it’s undergoing and this is inline with current market trends.
Aeropostale aims to focus on the P.S. brand through alternative sales channels that includes off-mall locations, e-commerce, and international licensing. Further, Aeropostale plans to add more labels to its portfolio going forward. These moves could improve its performance.
But, Abercrombie must be cautious about American Eagle, which has some other smart plans. American Eagle is experimenting with a buy online and ship-from-store pilot program. According to the company officials this program is believed to have received positive feedback. Further, American Eagle is also on a drive to reduce inventories and to improve its pricing strategy by executing promotions on some selected merchandize, apart from ramping product assortment.
The strategic moves of Abercrombie such as investing in important international markets, restructuring and repositioning its U.S. stores, and reducing costs are believed to help the company drive significant improvements. Thereby, investors are advised to definitely invest in Abercrombie looking at its healthy turnaround play.