Time could be running out for Abercrombie & Fitch Co.’s Ruehl division.
This story first appeared in the May 18, 2009 issue of WWD. Subscribe Today.
The company said Friday it has launched a strategic review of the five-year-old, 29-door post-college concept as the teen retailer reported a deeper-than-expected first-quarter loss.
Ruehl, which posted sales of $10.4 million and a comparable-store decrease of 34 percent during the first quarter, has never achieved critical mass in the time since its highly conceptualized introduction by A&F chairman and chief executive officer Mike Jeffries in 2004. Its survival prospects have been the subject of speculation since before the economic downturn.
“We believe the company is likely to shutter the division,” said Thomas Weisel retail analyst Liz Dunn, after learning of the company’s strategic review.
Last year, Ruehl’s comps declined 23 percent, more than any other A&F unit, but new stores helped it boost net sales 12 percent to $56.2 million. However, sales per square foot were $217, lower than any other division and 23 percent below the prior year. It hasn’t had a comp increase since August 2007, and all of its declines since then have been of the double-digit variety, highlighted by a 39 percent fall in March.
Abercrombie said it was deemed “appropriate” to record a pretax noncash impairment charge of up to $55 million based on the current book value of Ruehl’s operations. While not included in the loss reported Friday, the charge would be taken against first-quarter results and included when the firm files its quarterly report with the Securities and Exchange Commission on or before June 11.
But Abercrombie’s problems go beyond Ruehl.
Confronted by fashion missteps and weakened by high prices in a fiercely promotional market, the New Albany, Ohio-based firm reported a net loss of $26.8 million, or 31 cents a diluted share, for the period ended May 2. The deficit came against a profit of $62.1 million, or 69 cents a share, in the year-ago period. Sales slid 23.5 percent, to $612.1 million from $800.2 million, comps contracted 24 percent. Analysts expected a loss of 14 cents on revenues of $616.5 million, according to Yahoo.
Comps were down 26 percent at A&F, 32 percent at Hollister and 33 percent at Abercrombie, respectively.
With the contraction of the economy, the teen retailer has remained firm on its commitment to protect its brand, limiting promotions and consequently hurting its top line.
“We’ve spent years building our brands to compete on quality, aspiration and a unique store experience, not on price,” Jeffries said on the company earnings call. “There are also fashion headwinds. We are currently in a cycle that lacks a dominant trend in the female business. Trends that appear to have some traction are not the long-term trend of classic, casual, preppy all-American sportswear that is core to our heritage.”
Although Jeffries said these “phenomena are all temporary,” Pali Capital retail analyst Amy Wilcox Noblin said she seen a shift in fashion for a while now. “We’ve long thought that teens were moving away from Americana,” she said, adding Abercrombie’s product “looks the same as it did 10 years ago.”
Retail analyst Jennifer Black offered some support for Jeffries’ brand protection view. “Virtually every measurable metric showed deterioration in the first quarter,” she wrote in a note to clients. “Nonetheless, we continue to believe that management is employing the right strategy for Abercrombie in the long run, albeit painful in the near term.”
Noblin stressed the importance of “newness,” pointing to rival American Eagle Outfitters Inc., which has been adding more fashion to its assortment.
Majestic Research retail analyst Chandi Neubauer agreed, explaining American Eagle has been profiting off its strong dress sales as of late after previously struggling with its merchandise.
Jeffries was somewhat apologetic on Friday’s call with analysts. “Clearly we missed dresses, and clearly we weren’t as aggressive with print and pattern as we should have been. We were wrong. I was wrong and we are correcting this,” he said.
Shares of A&F closed Friday at $26.10, down $1.15, or 4.2 percent.