Teen apparel maker Abercrombie & Fitch (ANF, Financial) posted its first quarter numbers on May 28 for the fiscal year, and the analysts were disappointed as the earnings fell below their expectations. In fact, in the first quarter the same-store sales dipped below the analysts’ estimates. As sales became weaker during the first quarter, the same-store sales declined 9% in the U.S. and around 7% in international markets. Let’s quickly catch upon the major highlights of the quarter.
The quarter numbers
The specialty retailer of premium, high quality casual apparel reported net sales of $709.4 million, which was a straight dip of almost 14% year-over-year and missed the analysts’ estimates of $734 million as revenue for the quarter. The dismal performance of the retailer was majorly attributed to the comparable same store sales which slipped almost 8% during the quarter. Besides the drop seen in the same-store sales the negative impact of the foreign currency translation also contributed to lower revenue in the quarter.
It is being expected that this effect of the foreign currency fluctuations would continue into the next few quarters and drag the performance of the retailer going forward.
Executive Chairman Arthur Martinez stated during the earnings call, “…We knew the first quarter was going to be difficult due to a number of factors, both internal and external and, most significantly, because many of the actions we are taking to improve our business are in the early stages of implementation and have not yet been fully realized…” By division, the same store sales fell around 9% for the Abercrombie brand, while it saw a dip of 6% for its lower-priced Hollister brand.
The company reported an adjusted loss of $0.54 per share for the first quarter, which was above the estimates of analysts that was hooked to an adjusted loss of $0.34 a share. It does seem that the retailer is engaged in a battle with its peers and that it’s losing out in the competition for survival. The Wall Street analysts are worried upon the future of the company but the company officials are optimistic of quick revival in the near future. Martinez has pointed that there has been improvement in the same-store sales of the Hollister brand, as customers found the apparel prices to be better and hence he stated that the “comparable sales trend” has improved in May of this year.
He also pointed out that the Abercrombie brand did well in some clothing sections, but the lack of pricing differentiation of the new spring collection from the existing collections that did not sell well in the quarter weighed upon the net sales of the brand.
The competition is intensifying since other fashion retailers such as H&M and Forever 21 are putting all efforts to open more stores at Abercrombie’s key international markets where the latter has several flagship stores. In fact, the company is currently facing fierce competition from H&M which has recently inaugurated the largest store at New York Times Square. H&M now has almost 13 retail outlets in New York City, while Abercrombie has several flagship stores in New York. However, there is a rising trend noticeable in U.S. with the fashion brands offering more quality products for cheaper price tags, thereby, putting Abercrombie’s future at stake.
Parting thoughts
Abercrombie’s future seems to be clouded with black clouds, though the top bosses seem to be upbeat on the future earnings. As rivals continue to compete by offering better products for cheaper prices, only time will be able to state whether the specialty retailer will see better days in the quarters ahead. Let’s stay tuned and keep watching.
