A chastened Abercrombie and Fitch
Co. said Friday it is actively lowering prices and trying to catch up with fashion trends such as dresses as the retailer reported a fiscal second-quarter loss and its third straight quarter of double-digit sales declines.The preppy teen retailer entered the recession determined to wait it out, maintaining its relatively high prices and investing internationally. But consumers have abandoned Abercrombie for lower-priced options such as Aeropostale Inc. and American Eagle Outfitters Inc.
In response, the company has cut jobs and shuttered its even higher-priced Ruehl chain aimed at 20- and 30-somethings.
CEO Mike Jeffries said the company made a misstep with Ruehl.
The biggest learning from Ruehl is that as a company, we dont do mature well, Jeffries said in a conference call with investors.
Jeffries said the company has introduced lower prices and will lower prices even more in coming quarters.
We continue to be confronted with very challenging conditions during the second quarter, Jeffries said. Consumer spending patterns domestically continue to be dictated by cost and value propositions, and this is clearly a headwind for our premium brands.
In the quarter ended ended Aug. 1, Abercrombies loss totaled $26.7 million, or 30 cents per share. That compares with profit of $77.8 million, or 87 cents per share, a year ago.
Quarterly results included $24.4 million in charges for the Ruehl closing and store asset impairment charges. The company would not provide a per-share loss excluding the closure. However, Thomas Weisel Partners analyst Liz Dunn estimated the loss excluding one-time items would be about 8 cents per share.
Analysts forecast a loss of 7 cents per share. Analyst estimates typically exclude one-time items.
Sales dropped 23 percent to $648.5 million, but that topped analyst expectations of $646.5 million.
New Albany, Ohio-based Abercrombie & Fitch Co., which operates of namesake stores as well as abercrombie, its childrens apparel brand; surf-themed Hollister; and intimate apparel store Gilly Hicks, said sales in stores open at least one year, a key retail metric known as same-store sales, dropped 30 percent. Same-store sales fell 27 percent at namesake stores, 29 percent at abercrombie stores, 33 percent at Hollister and 31 percent at Ruehl.
Known for preppy offerings such as jeans and polo shirts, Abercrombie said it is working to improve its fashion offerings, particulary for women. Dresses and belts have been selling well.
We are always pushing ourselves but have admittedly missed some of the fashion opportunities that drove the business in the spring, Jefferies said.
Prices are also in flux. The company said the average prices will be lower in the third quarter and upcoming quarters than the second quarter.
We are planning to deliver greater reductions in (average unit retail price) for the fall season, but well continue to review pricing on an ongoing basis, Jefferies said.
The company slashed marketing, general and administrative costs during the quarter, down 19 percent to $88.7 million from $109 million last year.
The closing of Ruehl, its store focused on handbags and other accessories and aimed at older shoppers, should be complete by the end of the fiscal year.
Jeffries said the companys Gilly Hicks intimate apparel brand, which was skewing older, will now be aimed at the companys 20-year-old target market.
We are young, were sexy, were controversial at times, Jeffries said. Thats what we know how to do, and thats the business that we own here and are comfortable that we can around the world.
Abercrombie had pretty decent results, better than we expected, said Keybanc Capital Markets analyst Ed Yruma. Theyre getting traction on changes in their promotional strategy, including being more focused on denim and on opening price points.
Shares rose 99 cents, or 3 percent, to $33.95 during morning trading.
