Abercrombie & Fitch Hollister


That is what Abercrombie & Fitch Co.‘s management is asking for as it attempts to turn around the struggling A&F brand by appealing to an older demographic even as profits and sales continue to slide.

Many — including analysts and, most importantly, consumers — still consider Abercrombie a teen retailer even as the company aims to move up the age ladder. The two executives disputed criticism of that strategy.

“We know where the brand should be in its positioning…. There are plenty of them [the targeted consumer] out there,” said executive chairman Arthur Martinez. The new target sector is the elusive Millennial as opposed to their younger teenage siblings, Gen Z. “We are telling a new story, an evolved story on where the brand sits and to whom we are talking. It takes time to get in their minds,” he said.

Martinez said the brand transformation has been on a “journey for the last year and a half, a journey that is incomplete. Consumer research shows there is tremendous equity for the brand. We are reigniting something that’s there. It will take time to completely embed that [in the minds of consumers].”

Fran Horowitz, president and chief merchandising officer, pointed out that the majority of Abercrombie shoppers are “over the age of 20.” She added that the new imagery and marketing for the brand — one that favors inclusive diversity — that was teased last month has just now entered the reveal stage. Continued marketing supported by a social media presence is planned for holiday, beginning with Thanksgiving weekend and Black Friday.

In the meantime, though, A&F continues to struggle. For the third quarter, the company posted net income of $7.9 million, or 12 cents a diluted share, a steep drop from net income of $41.9 million, or 60 cents, a year ago. Excluding one-time gains, adjusted earnings per share were 2 cents.

Net sales fell 6.5 percent to $821.7 million from $878.6 million, with total comparable-store sales down 6 percent. While comps in the quarter were flat at Hollister, they dropped 14 percent at Abercrombie. Those results missed Wall Street’s adjusted EPS consensus estimate of 21 cents and revenues of $830.6 million.

While Martinez and Horowitz were asking for patience, Wall Street appears unconvinced about their strategy, sending A&F’s shares down 13.8 percent on Friday to $14.60.

In the interview, Horowitz said the company knows what went wrong at its Abercrombie business and has been making the appropriate changes for what it has control over.

She noted the obvious regarding lackluster traffic patterns at flagship and tourist locations and how that’s out of the company’s control, but what seems new this quarter was the decline in tourism, even at its overseas stores.

Another major problem was the merchandising — she noted the company did move quickly to discount and clear out what wasn’t selling. She said there were too many heavier weight items that didn’t match the buy-now-wear-now warmer fall weather, which added to margin pressures for the brand. One spot of good news was the reaction to the brand’s new “cozy” fabrication — a polyester blend — for women’s loungewear, which the company is now chasing for the holiday selling season.

She said the company is on track to open its new Abercrombie concept store early next year.

Analyst Adrienne Yih at Wolfe Research said the retailer has a “daunting task to reposition the core Abercrombie & Fitch” brand. She added: “We have noted our fears about repositioning the Abercrombie & Fitch brand with new target demo- and psychographic, which we have yet to [see] done successfully across any apparel retailers in the past decade.”

Jefferies’ Randal J. Konik said that the core Abercrombie brand initiatives are still in the early innings, and “we see potential over the long term as these efforts build, although we believe it may take longer than expected to bear fruit.”

Despite the ongoing challenges and investment required for the core Abercrombie brand, the company’s balance sheet is stable. Moody’s analyst Mike Zuccaro said, “Abercrombie continues to face significant challenges in repositioning its namesake brand in a more challenging apparel retail environment…. [I]t continues to maintain a conservative financial policy, with moderate debt and leverage levels and very good liquidity. Balance-sheet cash continues to amply exceed funded debt levels. We expect this to remain the case as the company further implements its turnaround strategy.”

The bright spot for the company seemed to be that at Hollister seems well positioned for the holidays. Horowitz said there’s been strong reaction to its outerwear assortment, and the company has seen favorable reaction from teen girls to the off-the-shoulder and cold-shoulder styles. “That’s been working for us,” she said, adding that for guys there’s been good traction in its epic flex stretch denim offerings.

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