Faster flow, fewer logos, and a sharper focus on runway and street looks. That’s a big part of the fashion fix at Abercrombie & Fitch Co., which has appeared to turn a corner.
On Wednesday, the $4.3 billion youth retailer reported strong third-quarter results. Profits shot up 40.5 percent to $71.5 million, or 87 cents a diluted share, from $50.9 million, or 57 cents, representing the highest earnings per share since 2007. EPS came in 28 cents ahead of the 59 cents analysts projected, driving the stock up more than 34 percent to close at $41.92 from $31.18.
Sales for the three months ended Oct. 27 rose 8.7 percent to $1.17 billion from $1.08 billion despite a 3 percent comparable-store sales decrease. Like other retailers, A&F is projecting a decline in comparable-store sales in the fourth quarter, with the impact of Hurricane Sandy baked into the forecast. A&F sees a midsingle-digit decline in the fourth-quarter comp, but, with business improving on several fronts, expects full-year profits per share of $2.85 to $3, better than the $2.50 to $2.75 forecast in August. A&F’s South Street Seaport store in Manhattan will be closed through the balance of the quarter. The overall sales impact from Sandy is $10 million directly from closures and from side effects.
“With the critical fourth quarter ahead and significant macro-economic uncertainties remaining, we continue to be cautious in our near-term outlook. But trust me, we are upbeat, engaged and highly motivated,” A&F chairman and chief executive officer Mike Jeffries said in a conference call.
“Merchandise initiatives are taking hold,” he said.
A&F, which operates Abercrombie & Fitch, Hollister, abercrombie kids and Gilly Hicks, has been affected by new stores cannibalizing existing ones in Europe and scores of laggard locations in the U.S., though the company has been aggressively culling. Officials said 55 to 60 domestic stores are closing this year through lease expirations, and 180 will be closed from 2012 to 2015. With growth abroad being slowed, cannibalization should decline, they added.
Not long ago, A&F was overinventoried, overly dependent on logoed goods, and considered lacking in fashion. Jeffries clearly addressed the issue, stating, “Logos are a part of our business, domestically and internationally. We turn logos extraordinarily well,” though he acknowledged, “It is a business we try to contain. We don’t want to look like a logo store. The mission is to restrict that as a percent of our inventory,” and in terms of the size of the logos.
After seasons of being overinventoried, “We are working to become faster with conservative plans” which, as far as the inventory, calls for shorter lead times and a higher percentage of the open-to-buy devoted to “chasing current trends,” Jeffries said. The “chase,” he cautioned, is not without some downsides, such as the higher costs of shipping by air and concerns over quality issues arising with accelerated production.
“We are working hard to be different by brand,” Jeffries added. “We’ve invested more in brand-specific design talent, in terms of fashion component. We are reacting quickly to runway and the street. We have always paid attention to runway and street, but we are spending more time reacting more quickly. That’s a natural evolution. All those things are impacting our fashion assortments.”
Explaining the new cadence in current shipments, Jeffries said, “We delivered mid-October, had some fashion deliveries November week two, and you will see more December week one. That kind of rhythm is very exciting.” Previously, “We had too much inventory, and we weren’t flowing newness. I think we are flowing faster and better than ever.”
Jeffries disclosed little about bestsellers, though he did say “women’s tops are starting to see some traction. Knits are doing well. That’s a big inflection point in the business. If we can get female tops really steaming, we will be in good shape.”
He also singled out accessories for potential growth. “I’ve had a problem with many accessory categories because of the quality of the business. Much of it has been inexpensive trinkets. We now see an accessory business that can be a reflection of the quality of each of the brands. We will start to see rollouts in our accessories — as a matter of fact, this week — with bracelet presentations.”
Jeffries acknowledged the fourth quarter of 2011 through this year’s second quarter was challenging due to a spike in commodity costs, sharp deterioration of the macroeconomic environment in Europe, and “ending up on the wrong side of some merchandising planning decisions made in 2011.” However, “Our U.S. chain-store business posted healthy growth on top of a strong quarter a year ago, and we saw sequential trend improvement in our international business.”
Overseas, U.K. comps remained challenged, down in the high 20 percent last quarter; Scandinavia was a “bright spot.” The first Hollister in Hong Kong is trending positively, and there’s optimism in Asia as A&F increases its presence there. Stores in Belgium and Spain are running flat, and while volume is good in Japan, the profitability isn’t.
Some analysts characterized the third quarter as representing “a stabilization” of the business, particularly in the U.S. That didn’t go over well with Jeffries. “The notion that our U.S business has been in decline is just nonsense,” he said. “Although the U.S. environment remains tough, we have made consistent progress over the last three years and the numbers speak for themselves. U.S. chain stores have had positive comps for nine of the past 10 quarters, and including [direct-to-consumer], positive comps for each of the past 11 quarters.”
“Abercrombie & Fitch has significantly turned things around by flowing in newness much more frequently during the quarter,” said Jennifer Black, ceo of Jennifer Black & Associates. “While the men’s business outperformed the women’s, the company did see traction in women’s tops, with sweaters and knits improving.” She also cited A&F’s new CRM [customer relations management] program as providing a singular view of customers across channels and triggering more shopping. However, “the biggest call-out is the move away from logoed merchandise. This continued decline in logoed merchandise should significantly enhance and drive productivity levels.”
“A&F is at an inflection point, and we believe the negative earnings revision cycle has ended,” said Randal J. Konik, an equity analyst at Jefferies & Co. Inc. in a report.
@kering_official is spinning off its stake in puma in an effort to focus on its luxury brands, the brand operator announced yesterday. “We are proud to have supported the turnaround of Puma, which now has unrivaled capabilities to take full advantage of the specific dynamics of its global markets and is poised to achieve substantial growth,” said François-Henri Pinault, Kering’s chief executive officer and chairman. Artémis will become a “long-term strategic shareholder” of Puma with a 29 percent stake. #wwdnews #wwdfashion (📷: @jilliansollazzo)
The fashion world mourns for celebrated street style photographer, Nabile Quenum, who died at age 32 in Paris.
Quenum, creator of the fashion blog “J’ai Perdu Ma Veste,” was a fashion week fixture, and regularly shot for New York magazine’s The Cut, among other outlets, and brands such as Louis Vuitton, Moncler and Adidas. He was also actively involved in the #NoFreePhotos initiative, which kicked off in the fall. Read more about Quenum in @kbsmoke's story on WWD.com. #wwdnews
@verwanggang and @maisonladuree have teamed up on a dessert collab called Vera Wang Pour Ladurée. The collection, which launched this week, features a specialty macaroon, as well as a wedding cake inspired by one of the designer’s gowns. “I could not imagine a more delicate or sophisticated creation to grace any couple’s celebration,” said Wang. #wwdfashion
“I’m Russian and I love to use all these little tricks that I got from my grandma or my mom. We didn’t have a lot of money for creams or anything like that so we would use a garden as a beauty treatment regime. We’d put cucumber in the fridge and do a cucumber mask,” says model @irinashayk on one of her beauty hacks. WWD asked celebs what their go-to self-care rituals are. See what Naomie Harris, Freida Pinto and more said on WWD.com. #wwdeye #wwdbeauty (📷: @zefashioninsider)
Exclusive: @viktorandrolf are teaming up with @Zalando on a collection made from leftover clothing. The lineup, which lands at the retailer February 1, includes 17 pieces adorned with sliced up and repurposed overstock from the retailer’s private label collection. Pictured here is a look from the collection –– see more on WWD.com. #wwdfashion #wwdnews
@duewestnyc is the newest bar joining the collection of intimate neighborhood-focused spaces in the West Village. The cocktail menu, which includes bitters and syrups made in-house, offers a “Build Your Own Old-Fashioned” – like the one pictured here – where guests can choose from a list of spirits and unexpected sugars and bitters. #wwdeye
Spotted at last night’s National Board of Review gala in NYC: Angelina Jolie. Jolie – along with Meryl Streep, @lupitanyongo and more – continued the all-black dress code from Sunday’s Golden Globes. #wwdeye (📷: @lexieblacklock)