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Abercrombie $26.7M Loss Triggers Price Cuts

Loss is retailer's third straight quarter of double-digit sales declines.

After reporting a $26.7 million loss in the second quarter and its third straight quarter of double-digit sales declines, Abercrombie & Fitch Co. said it is working to enliven its fashion mix and lower prices.

This story first appeared in the August 17, 2009 issue of WWD.  Subscribe Today.

The New Albany, Ohio-based company has sought to protect its brand and avoid promotions even as consumers opted for less-expensive fashions, but chairman and chief executive officer Michael Jeffries said the teen retailer is beginning to adjust its strategy.

On a conference call with analysts Friday, Jeffries acknowledged that “consumer spending patterns domestically continue to be dictated by cost and value propositions and this is clearly a headwind for our premium brands.”

In order to combat these challenges, he said the company is lowering ticket prices with the “most dramatic” cuts to take effect next quarter. Reductions will be more pronounced at the Hollister and abercrombie kids’ chains.

“A little reality goes a long way,” said Jeff Black, Barclay’s Capital retail analyst. “I like where they are going. There’s newness in the stores, and there hadn’t been in two years.”

Jeffries, while acknowledging some fashion misses in the spring, said, “We continue to see and believe that customers will pay for the right fashion, and that’s exactly what’s happening in the business. It’s a work in progress.”

The company is also repositioning its Gilly Hicks intimate apparel brand. Jeffries said the concept would now target a 20-year-old customer, where it had been focusing on shoppers 22 and up.

“The biggest learning from Ruehl is that as a company, we don’t do mature well,” Jeffries said, referring to the 29-door chain the company decided to shutter in June. “That’s a lesson for Gilly going forward and all of our brands. We are young. We are sexy. We are controversial at times. That’s what we know how to do and that’s the business that we own here and are comfortable that we can around the world.”

For the second quarter ended Aug. 1, Abercrombie’s loss translated into 30 cents a diluted share and compared with a profit of $77.8 million, or 87 cents, a year ago. The loss included a $24.4 million pretax charge for closing the Ruehl operations and related store asset impairment charges.

Revenue fell 23.3 percent to $648.5 million from $845.8 million a year earlier, as quarterly comparable-store sales declined 30 percent. Analysts anticipated a loss of 7 cents a share.

For the first half, Abercrombie recorded an $86 million loss, or 98 cents a diluted share, versus a profit of $139.9 million, or $1.55 a share. Revenues slid 23.4 percent to $1.26 billion from $1.65 billion.

In other Abercrombie news, a former employee at Abercrombie & Fitch’s London flagship was awarded compensation for wrongful dismissal from the store totaling 9,013 pounds, or $14,900 last week, according to London Press Association reports. Riam Dean, who wears a prosthetic arm, claimed in an employment tribunal during the three weeks she worked at Abercrombie’s Savile Row store, she was asked to remove a cardigan that covered her prosthetic limb, as it didn’t comply with Abercrombie’s dress code. The tribunal ruled last week that Dean was “unlawfully harassed for a reason that related to her disability,” but said the company didn’t discriminate against her on the grounds of her disability.