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Famous for its bare-chested male models and preppy polos, Abercrombie & Fitch Co. struggled in 2009 as it opted to protect its brand image rather than join in teen retailing’s profligate discounting. In order to focus on its namesake brand, Hollister, abercrombie kids and Gilly Hicks, as well as international expansion, the New Albany, Ohio-based company decided in June to shutter its five-year-old Ruehl concept, a 29-door chain aimed at 22- to 35-year-olds.
But Abercrombie’s woes stretched far beyond Reuhl. The company has turned in double-digit comparable-store sales declines since the third quarter of 2008. In the first two quarters of 2009, A&F reported a 30 percent comp drop and, for the third quarter, it registered a 22 percent slide. Last month, the company recorded an 11 percent drop, weighed down by A&F, Hollister and abercrombie kids, which recorded declines of 13, 25 and 15 percent, respectively. Ironically, Ruehl led the way with just a 1 percent dip.
The signs of trouble grew just this week when Chad Kessler, executive vice president of female merchandising, lost his post, according to sources. He’d reported directly to A&F’s chairman and chief executive officer Michael Jeffries.
According to RBC Capital Markets analyst Howard Tubin, comps should “flatten out” in 2010, with “potential positive trends at the end of the year.” Tubin said the company would need to bring in merchandise that has a “wow factor,” something it hasn’t enjoyed in recent quarters, in order to drive domestic sales, but that international expansion should help.
Still, he added: “I think to have the brand cachet outside of the U.S., you need to make it relevant in the U.S.”
Retail analyst Jennifer Black, of Jennifer Black & Associates, agreed. “The company has obviously lost ground with today’s consumer who has become more value-conscious in this economic climate. We believe that this will not change at least in the U.S. market for quite some time. Today’s teen consumer is on a tighter budget, dealing with unemployment levels as well as trying to balance fashion wants. We believe the budget is winning.”
A&F clearly isn’t. Wall Street expects the retailer to generate 88 cents in earnings per share for the fourth quarter, lifting the year-end figure to 93 cents versus $3.38 a year ago. However, analysts’ estimates for next year call for a pickup in earnings to $1.68 a share.