Could Abercrombie & Fitch Co.‘s slight second-quarter comparable sales miss have some investors overdoing the fear factor?
The retailer reported mixed earnings results on Thursday, but what drove a 17.2 percent drop in the stock price was primarily due to a comp sales gain of just 3 percent, slightly below Wall Street’s expectations of a 3.6 percent increase. Abercrombie shares closed at $22.55 in Big Board trading. Separately, the company said adjusted diluted EPS was 6 cents a share, beating Wall Street’s consensus estimate of 4 cents. Net sales rose 8.1 percent to $842.4 million, missing the Wall Street estimate of $845.2 million.
Investors seem to fear that if comps had a sequential decline in the second quarter, there is a chance the third and fourth quarters might see slowing momentum in either comparable sales or sales in general.
But Abercrombie executives don’t think so.
In a telephone interview with Fran Horowitz, chief executive officer, and Joanne Crevoiserat, chief operating officer, the executives were quick to note some pluses heading into the second half.
Horowitz didn’t see any hiccups — or even a recession — for the back half of the year. “Actually, we think the environment is improving out there. We had a solid first half and we’re excited about the back half. We have momentum heading into the back half. We continue to closely monitor the customer for both brands and that is paying off,” the ceo said.
She added that the merchandising team’s experience in giving consumers the products that they want is helping to drive momentum, giving the company positive comps for both its Hollister and Abercrombie brands. The U.S.-based business was stronger than its international counterpart for the quarter.
Hollister’s comps were up 4 percent, representing the seventh consecutive quarter of comp sales growth. Abercrombie was up 2 percent, with the comps increase representing the third consecutive quarter of positive comp sales. The slip in comps at Hollister was attributed in part to the prolonged hot weather in Europe and how the floor set transition assortments weren’t suited either to the heat or customers’ demand for wear-now apparel.
According to Horowitz, Hollister’s partnership with singer-songwriters Khalid and Noah Cyrus has been well-received. The partnership helps raise awareness of the issue of bullying at school. Hollister has been supporting antibullying efforts since 2013. The ceo said the effort is a “positive for the kids, as well as for the brand.”
The new Abercrombie-branded campus stores just launched — a move that’s as much a test lab to get learnings from its targeted consumer base as it is a retail concept that’s closer to where customers are located — and the ceo said she’ll have more information about how well the concept is doing later in the year. Currently, the business for both brands is equally split across both genders.
As for potential issues, such as tariffs, that could arise from the trade spat between the U.S. and China, Crevoiserat said accessories is a small part of the overall business, so an anticipated additional tariff on the category wouldn’t impact the company.
The operations chief noted that the focus on growth is centered on its “Must Grow, Must Win” apparel categories. As for production hiccups or issues on the supply chain side of the business, Crevoiserat said, “We have a global and agile supply chain.” She explained that the company has been shifting product manufacturing to new countries, and is not reliant on any one nation.
Tops and bottoms are the core categories for both brands and for both genders.
Meanwhile, the Abercrombie brand will be hosting a lounge space at Cause Village this weekend at the “Made in America” music festival in Philadelphia. The brand is the festival’s official fashion brand partner.
In the Abercrombie area of the Village, the space will accommodate a store, barber shop and a recharging station. The store will sell a unisex capsule collection that represents a partnership between the brand and Made in America. The capsule — hoodies, long- and short-sleeve T-shirts with “Made in America” spelled out in 13 languages — will also be available on the brand’s e-commerce platforms.
Abercrombie’s over 4.5 million Club members, its loyalty program, will have customer access to exclusive discounts, events and experiences. While the festival will benefit the ACLU and United Way of Greater Philadelphia and Southern New Jersey, the Pennsylvania affiliate of the ACLU will receive an additional donation from the brand as part of its involvement with the event.