Even though Abercrombie & Fitch Co. swung to a second-quarter profit, the teen retailer’s shares descended 6.9 percent to close at $35.05 in trading Tuesday as worries over softening margins, rising inventories and newly announced store closures preoccupied Wall Street.
A&F unveiled plans to chop up to 110 stores over the next 18 months, mainly because of natural lease expirations. The apparel firm anticipates closing 60 stores domestically during the year and 50 more stores in 2011. The majority of closures will be in the kids’ division and in the Abercrombie chain, executives said in a call to Wall Street analysts. On the international front, the retailer said it would open 20 mall-based Hollister stores in fiscal 2010, down from its previous estimate of 25 stores.
At the end of the second quarter, the company operated 1,098 doors, which included 345 A&F stores, 206 children’s stores, 530 Hollister stores and 17 Gilly Hicks stores.
Forced to play hardball with lower-priced rivals like Aéropostale Inc. and American Eagle Outfitters Inc., the company reduced average unit retail by 15 percent in the quarter, and built second-quarter inventories up 47 percent over last year, to compensate for what it called “significantly under-inventoried” year-ago levels.
Chairman and chief executive officer Mike Jeffries said on the call that the company is carrying more inventory to back up some “trends” that are gaining “traction.”
But the ceo was mindful of the price-sensitive climate, adding: “We are prepared and plan for an aggressive promotional environment and ready to deal with that if that is how things end up.”
That willingness may be a necessity, as the “inflated inventory position will likely require significant markdowns to clear, pressuring third-quarter EPS,” said Stifel Nicolaus analyst Richard Jaffe. “While we believe the merchandise has improved, there is still work to be done, as we believe a significant portion of the merchandise remains uninspiring and lackluster. It appears the consumer agrees with us, as it required deep markdowns”
“Inventory concerns, while valid in an uncertain top-line period, I think are overdone,” said Weeden & Co. analyst Amy Noblin, who explained the company expects a midsingle-digit comp gain in the fall based on the inventory build.
“Most retailers are waiting for a macroeconomic recovery,” Noblin said, but Abercrombie “is one of the few out there vis-à-vis 12 months ago that can do a lot” to positively “impact” the brand.
The New Albany, Ohio-based firm has already begun making strides, as it posted net income of $19.5 million, or 22 cents a diluted share for the second quarter ended July 31, compared with a year-ago loss of $26.7 million, or 30 cents a share. Income for the quarter includes a non-cash asset impairment charge of 2 cents a diluted share in connection with expected store closures. Sales expanded 17 percent to $745.8 million from $637.2 million. Analysts projected EPS of 16 cents on sales of $727.7 million, according to Yahoo Finance.
Including direct sales, international revenue soared 85 percent to $133.2 million, while domestic sales increased 8 percent to $612.6 million. Comparable-store sales for the quarter rose 5 percent, led by an 8 percent comp jump at Abercrombie’s namesake chain. Abercrombie kids and Hollister & Co. reported comp increases of 3 percent and 2 percent, respectively. Quarterly gross margin slid to 65.1 as a percent of sales, versus 66.6 percent a year ago.
In first half, the retailer turned in a $7.7 million profit, or 9 cents a diluted share, versus a net loss of $86 million, or 98 cents in 2009.
London’s newly opened @designmuseum will look back on the life and work of Azzedine Alaïa in a show that the designer helped to curate before he died of heart failure last month. The retrospective, which Alaïa had worked on with Mark Wilson, chief curator of the @groningermuseum, will look at the impact of his work worldwide. The show, “Azzedine Alaïa: The Couturier,” will run from May 10 to October 7. Read more about the exhibit on WWD.com #wwdnews #wwdfashion (📷: @zefashioninsider)
@Pharrell and his wife Helen Lasichanh were among the stars that came out to celebrate @rimowa’s first pop-up concept shop. The space, which is located on Rodeo Drive in Beverly Hills, draws inspiration from airport luggage carousels and lounge areas – and features the company’s luggage and accessories. If the pop-up is successful it could pave the way for addition temporary shops throughout the world. #wwdfashion (📷: Owen Kolasinski/BFA)
@carineroitfeld celebrated @crfashionbook’s first calendar last night with a dinner party at Spring Place in Manhattan. Photographed by @stevenkleinstudio, the calendar takes on a fitness theme and features @joansmalls, @gigihadid, @danielle_herrington_ – pictured here – and more. “[Carine Roitfeld] wanted me to feel sexy and she wanted me to be myself and feel it out on my own and do what I felt was right,” said Herrington, aka Miss October. #wwdeye
@saintrecords and @virgilabloh last night at @americanexpress’ “A Night With Success Makers” event. “I always bring it back to community because without that I wouldn’t have the courage,” said Knowles when asked how she has gotten where she is now. Read more highlights from their conversation on WWD.com. #wwdeye (📷: @lizdoupnik)
This Just In: Industry sources have told WWD that Anastasia Soare is rumored to be considering selling her beauty business, @anastasiabeverlyhills. According to those sources, Soare has tapped investment bank Imperial Capital to explore sale options for her eponymous beauty brand –– and with at least $340 million in net sales, this would be a big deal. Put in context of other recent transactions for makeup companies, Soare’s price tag could be in the billions if she were to sell the whole thing. #wwdnews #wwdbeauty (📷: @clint_spaulding)
@assouline’s latest book, “The Spirit of Bentley: Be Extraordinary” captures the adventurous attitudes and opulent lifestyles of @bentleymotors’ most creative owners and enthusiasts throughout the U.K. The 292-page hardcover has a section dedicated to showing its team of skilled artisans and photos of its most colorful owners, from George Bamford to designer @alicetemperley, pictured here by Aline Coquelle. #wwdeye
@google released its report on the most popular search terms this year. For fashion brands, the list was led by @gucci, the luxury brand that stunned the market last October when it pledged to stop using fur. Runner ups were @supremenewyork and @fashionnova, along with more established brands like @louisvuitton, @chanelofficial and @ysl. #wwdfashion (📷: @aitorrosasphoto)
In yet another fashion show shuffle, @elleryland is moving its show in sync with the Paris couture calendar — though the brand is still keeping one foot on the city’s ready-to-wear schedule. Their runway show in January will coincide with the launch of a new strategy: designing two main collections each year instead of four, which will then be released in four drops. “As we all know, the system needs to change. We need to show sooner to give time back to artisans and designers to do what they do best — create,” said founder Kym Ellery. #wwdnews #wwdfashion (📷: @kukukuba)
@maxmara’s classic 101801 coat was the cornerstone of its pre-fall 2018 collection. The design team expanded the traditional double-breasted, kimono-sleeved style into a trapeze coat, lean belted styles and a peacoat and presented them in monochromatic looks – like the camel one pictured here. #wwdfashion #prefall18 (📷: George Chinsee)