Abercrombie & Fitch Inc., which on Thursday reported the weakest August same-store sales performance among a pack of weak specialty stores, on Friday saw its shares drop sharply following a downgrade by Citigroup to “sell” from “buy.”
Following the morning downgrade, shares hit a new 52-week low of $47.83 before reclaiming some lost ground to finish the New York Stock Exchange session at $48.61, down $2.38 or 4.7 percent. After declining in early trading, the Standard & Poor’s Retail Index ended the day up 0.6 percent at 403.78. The Dow Jones Industrial Average ended the week at 11,220.96, which was 0.3 percent ahead of Thursday’s close.
A&F’s corporate comparable-store sales dropped 11 percent during August, as reported, as the flagship brand dropped 5 percent, Hollister Co. fell 14 percent and Abercrombie was down 17 percent. The fledgling Ruehl unit, with 25 stores, decreased 25 percent.
In her research note, Citigroup analyst Kimberly Greenberg wrote, “We believe Abercrombie is poorly positioned in a challenging consumer spending environment given its premium pricing coupled with limited innovation in its fall assortment.”
Second-half earnings estimates were lowered to $3.24 a share from a range of $3.40 to $3.45 and the target price dropped to $45 from $73. The reduction was prompted by deterioration in the European economy, initially expected to be a source of growth for A&F, as well as the company’s aggressive inventory plans and declining direct sales and Citigroup’s expectations of a high-single-digit decline in comps during the current quarter.
Abercrombie, like many retailers, is trying to “strike a delicate balance,” according to Piper Jaffray retail analyst Jeffrey Klinefelter, between managing inventories and rolling out promotions.
Abercrombie, however, has refrained from running sales, and instead has maintained full prices, said analyst Jennifer Black, of Jennifer Black & Associates.
“With most other teen retailers running enticing promotions this back-to-school season, with consumers responding to many of these incentives, it is not surprising to us that Abercrombie would fare a little worse than expected relative to the competition,” she said.
While A&F faces some of the toughest challenges in specialty retailing, it is hardly alone.
“With the release of August sales results, it is clear the back-to-school selling season is shaping up to be a disappointment for the majority of specialty retailers,” said Susquehanna Financial Group analyst Tom Filandro. “A combination of weak traffic and consumers feeling the pinch from higher costs, as well as a lack of stimulus-induced shopping, pushed the August sector comp into negative territory.”
Filandro upgraded Zumiez Inc. to “positive” from “neutral” last week following its 0.2 percent increase and called the board-and-bike-oriented store “one of the few specialty retail brands poised for significant store growth over the next several years.”
Citigroup broadlines analyst Deborah Weinswig noted that, by last month, the benefits of government stimulus checks had clearly been exhausted. “Everyone at the back half of the month was buying what they needed, as opposed to what they wanted,” she said, adding discounters were getting the lion’s share of b-t-s business, while specialty retailers and department stores struggled.
Broadline retailers may generate their own traffic, but that’s not the case for specialty stores at the mall. Even with gas prices down during August, traffic is still a problem for retailers at shopping centers, and it’s something they can’t control, said Piper Jaffray’s Klinefelter.
He feels it will be a “very difficult second half of the year” for retailers selling at higher prices.
Thomas Weisel Partners Group retail analyst Liz Dunn viewed the problems in the teen market in terms of price as well.
“I think there continues to be a story with the sort of moderate retailers and low-end retailers outperforming the high end,” she said. “I think you see that playing out in the teen space,” pointing to the success of Aéropostale Inc., which posted a 13 percent leap in comps, versus the struggles of A&F and Pacific Sunwear of California Inc., which had a 6 percent comp decline.
In the misses’ category, “there’s not a lot of fashion,” Dunn noted, citing declines of 10, 8 and 6 percent, respectively, at Chico’s FAS Inc., Cato and Caché Inc. She also noted that wives and mothers may be deferring spending on themselves to wardrobe their husbands and children.
Of course, opportunities remain. Retailers that have “differentiated or have a more global appeal should fare better in this environment,” said retail analyst Jennifer Black.
The same should be true of “niche” players with “unique merchandise,” said Pali Capital Research analyst Amy Noblin, citing Buckle Inc.’s 25.9 percent August comp increase and the 31 percent jump at American Apparel.
EXCLUSIVE: @tomford is opening its first-ever beauty store. The boutique, which opens November 20 in London’s Covent Gardens, was designed with the over-the-top glam Ford is known for. Read the full story on WWD.com, link in bio. #wwdbeauty #wwdnews (📷: Simon Wagner) #TomFordBeauty
New York-based DJ @harleyvnewton threw a party to celebrate the holiday collection of her dress and pajama line @hvn at the Ladurée Beverly Hills. It Girls @katebosworth, @rashidajones and more joined in on the fun, which included cocktails, croque monsieur sandwiches and a photo booth. #wwdfashion (📷: Owen Kolasinski/BFA.com)
For the holidays, @Burberry partnered with 20-year-old artist @blondeymccoy on a series of three outdoor murals in downtown Manhattan. The murals are McCoy’s interpretation of a Christmas eve party, the idea of charity and the spirit of family. His third mural, pictured here, is the most personal. The image depicts McCoy’s grandparents and father in London’s Trafalgar Square in the Seventies. “My work often features lots of sentimental objects.” #wwdeye
For spring 2018, designers applied bold colors and cartoonish motifs on everything from sneakers and belts to key chains. See all the top men’s accessories trends on WWD.com. #wwdtrends (📷: George Chinsee; Prop Styling by @rnasti; Market Editor: @luiscampuzano)
The @dior-sponsored @guggenheim international gala pre-party has a history of drawing cool-girl musical acts to serenade the crowd –– and last night was no exception. @haimtheband performed songs both new and old, and lured a star-studded audience with the likes of Rebecca Hall, Kate Mara, Mamoudou Athie and more. #wwdeye (📷: @lexieblacklock)
In a partnership between the @metopera and the @englishnationalopera, “Marnie” was born. The opera, with costumes sponsored by @mrporterlive, is an adaptation of the 1961 thriller by Winston Graham. Arianne Phillips, who created the costumes, is no rookie: She’s styled Madonna for her tours and created costumes for a myriad of films in the past. Read WWD’s interview with Phillips, where she talks about her inspiration for the opera’s costumes on WWD.com #wwdfashion
@barneysnyc took a different approach to their holiday windows this year. Instead of Christmas decor, Barneys tapped @thehaasbrothers to tell a story of positivity, gratitude and inclusivity via heartwarming silliness and humor. “It’s about kids and it’s about coming together and being family and loving each other,” said Simon Haas. #wwdfashion (📷: @joshuascottphoto)
Beauty influencer @kandeejohnson makes her foray into hair care with a collaboration with @ogx_beauty — making it the first time that OGX has teamed up for a product creation. The collab includes shampoos and conditioners in three scents. At 39 and a mom, Johnson is a different profile than the emerging social media stars, but is considered one of the pioneers of the digital beauty influencer world. Read WWD’s interview with her on wwd.com, including the strangest beauty product she’s ever tried #wwdbeauty