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.
@chanel and @pharrell dropped what’s being dubbed as the world’s most exclusive sneakers yesterday. The Adidas Originals NMD Hu, which Williams designed in collaboration with Chanel and @adidasoriginals, has a waiting list of over 120K people who pre-registered online at chanelatcolette.fr –– and only 500 pairs are on sale. The singer predicted the resale value of the shoes could reach $40K. Read the full interview on WWD.com. Link in bio. #wwdfashion
@imanshumpert is diving deeper into his creative endeavors and relaunching his clothing line, Post 90s, and is helping to raise money for the hurricane victims in St. Maarten with a jersey he’s designed with his brother. The Cleveland Cavaliers player talked to WWD about kneeling during the national anthem, working with fashion brands and how he wants to be more than an @nba player. Read the interview on WWD.com #wwdfashion (📷: George Chinese)
Not only does #TheProfit return to CNBC tonight, but @marcuslemonis has launched @shopmarcus, a new shopping and lifestyle retail experience in Aspen and Chicago, with more locations to come. The retail stores offer in-store stylists and a variety of contemporary womenswear selections.
“It’s life, I’m going to face it,” @mingxi11 sighed. “I fell, but you know, I think the most important thing is that I get back up. I had the love, the help from my sister — the girl next to me Gizele [Oliveira] — she’s so nice. When I went backstage everybody was trying to comfort me like ‘Oh Ming, it’s OK.’ I’m really, really touched. I think it’s them who gave me the courage to go back on stage for the finale,” Xi told WWD of her fall at the @victoriassecret fashion show. (📷: David Fisher) #wwdfashion #vsfashionshow #victoriassecret
@louisvuitton tapped @therealpeterlindbergh for its latest city-centric photo book, which is part of a series called Fashion Eye. The primarily black and white book captures the spirit of Berlin in 57 images shot between 1989 and 2019. “Berlin is an inspiration for me, more than a city. I mean @millajovovich is simply Berlin!” said Lindbergh. #wwdfashion
“You know, I think audiences expect a certain performance so I have to deliver to them what they’re expecting to a certain degree. But I’m also a different actor and a different person, I have my own spin on the character,” says @noahegalvin of his takeover of the leading role in “Dear Evan Hansen” following the departure of @bensplatt, who originated the role. Read WWD’s interview with the 23-year-old actor on WWD.com #wwdeye (📷: @jilliansollazzo)
For pre-fall 2018, @etro created richly-colored wonderland, using tapestries, textiles and wallpapers from the Eastern world at large. The line featured floral and graphic prints and jacquard motifs, like this two-piece look featured here. #wwdfashion (📷: Giovanna Pavesi)
@kith is moving into children’s. The men’s and women’s streetwear brand has launched Kidset, a Kith kids line located in New York at 64 Bleecker Street. The line includes mini versions of staple Kith pieces like the Astor bomber jacket and the Kith box logo sweatshirts, along with a wall that can display up to 120 pairs of shoes from @adidas, @newbalance, @timberland and more. #wwdfashion
“I just wanted to create this fully rounded character, but I do think what excited me most was just the opportunity to give a group of people representation that I feel needs it. I like to do characters in projects that stand for something and Karolina definitely does, so that was really exciting to me,” @ginnygardner says of her new role in @hulu’s “The Runaways.” Gardner plays Karolina Dean, a queer superhero, which is a rarity for @marvel. Read more about Gardner’s character on WWD.com #wwdeye (📷: @dandoperalski)