Logos are losing some of their consumer appeal — and nowhere is that more evident than at teen retailers like Abercrombie & Fitch Co.
Abercrombie revealed Thursday it is moving away from the logo business, and will eventually exit the category entirely in its North American stores. That’s a major change from the company’s heritage, and the days when the three As — Abercrombie, American Eagle Outfitters and Aéropostale — dominated the mall corridors competing against each other with their logos front and center in store windows and on display tables.
To be sure, brands in general have been relying less on logos, particularly in the accessories sector where companies from Coach to Gucci have been deemphasizing their logo products.
The move by Abercrombie is also a nod to how the teen consumer has changed over the years and why teen retailers have seen pressure in the last few quarters.
In the case of Abercrombie, the female consumer has been more oriented toward fast fashion. And while logo product has been decreasing at the A&F brand, it hasn’t been moving out as fast at the Hollister brand, which typically has a higher percentage of logo offerings. That was evidenced by the steep second-quarter comparable-store sales decline of 10 percent at Hollister compared with a dip of 1 percent at the core A&F branded stores.
Michael Jeffries, chief executive officer, said in a conference call to Wall Street analysts, “In the spring season, we’re looking to take the North American logo business to practically nothing, but protect logo in international stores.”
Jonathan Ramsden, chief operating officer, said in a telephone interview, “Our consumer is less logo-oriented. They are [no longer] walking billboards.”
Ramsden explained that for now, the company will support the logo category in its overseas stores because “international is at a different stage” of that business cycle.
In the call, Jeffries also spoke about how the company was making up the decline in the logo business in tops, a fashion-related category that also has been impacted by the company’s Chase strategy. Chase involves testing product and reacting to what is garnering a positive response from the consumer to reducing lead times during the production cycle.
According to the ceo, “Chase represented approximately 20 percent of the female assortment in the quarter and we expect to roughly double that figure for spring 2015. And while Chase currently represents a much smaller percentage of the male assortment, we will be looking to significantly expand its use there as well.”
Joanne Crevoiserat, chief financial officer, said the Chase strategy involves “chasing fashion into the assortment. It’s when we trigger calls on product.” She explained that the company is embedding the strategy in its business practice and reserving the open-to-buy to ensure that that happens. The cfo also said the strategy provides an agility to get into product offerings that are working.
Abercrombie revealed its switch in strategy as it reported second-quarter results. For the three months ended Aug. 2, net income rose 13.3 percent to $12.9 million, or 17 cents a diluted share, from $11.4 million, or 14 cents, a year ago. Excluding charges, adjusted earnings were 19 cents a share, compared with Wall Street’s expectations of 11 cents. Net sales slipped 5.8 percent to $890.6 million from $945.7 million, below Wall Street’s estimate of $909.8 million. Overall comparable-store sales fell 11 percent.
For the six months, the net loss was $10.8 million, or 15 cents a diluted share, against net income of $4.2 million, or 5 cents, a year ago. Net sales fell 4 percent to $1.71 billion from $1.78 billion.
But even as Abercrombie scrambles to institute new strategies and jump-start its business, Wall Street punished the retailer’s shares, which fell 4.8 percent to $41.87 in Big Board trading. Despite beating expectations on the profits side, analysts were disappointed over the sales decline.
The company said it expects full-year diluted EPS in the range of $2.15 to $2.35.
Separately, Pacific Sunwear of California, posting results after the equity markets closed, swung to a second-quarter profit. For the three months ended Aug. 2, the company said net income was $7.5 million, or 10 cents a diluted share, against a year-ago net loss of $19.2 million, or 28 cents. Net sales gained 0.8 percent to $211.7 million from $210.1 million as comps were up 0.3 percent.
Gary H. Schoenfeld, president and ceo, said sales trends improved as the quarter progressed, led by continued growth in its men’s business.
Looking to the third quarter, Schoenfeld said, “Even in the face of a down-trending denim cycle, we are encouraged by the positive response to the balance of our initial fall assortments. We continue to believe that our core strategies are attracting new customers and differentiating PacSun in this very competitive market.”
Shares of Pacific Sunwear closed up 2.2 percent to $2.30 in Nasdaq trading, but fell 4.4 percent to $2.20 in early after-market trading following its report of second-quarter results. That’s because the company provided third-quarter guidance that projected a wider diluted EPS loss from continuing operations in the range of 9 cents to 4 cents than Wall Street’s projected loss of 2 cents.
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