Dive Brief:
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Teen apparel retailer Abercrombie & Fitch Tuesday said Q2 net sales fell 4% from the same quarter last year to $783.2 million, and that Q2 same-store sales were also down 4% year over year.
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The Abercrombie flagship brand contributed most to the company’s woes, with same-store sales in the quarter falling 7% on falling traffic and muted interest from tourists. It’s the company’s 14th straight quarter of sales declines, according to Reuters; shares fell 12% in pre-market trading Tuesday morning. Abercrombie & Fitch also reported an adjusted loss of 25 cents per share. Thomson Reuters analysts on average had expected an adjusted loss of 20 cents per share on revenue of $782.7 million, according to Reuters.
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Looking ahead to the remainder of fiscal 2016, Abercrombie & Fitch said it expects same-store sales will "remain challenging through the second half of the year, with a disproportionate effect from flagship and tourist locations." The retailer also warns of "adverse effects from foreign currency on sales of approximately $25 million and on operating income of approximately $20 million, with the greatest impact in the third quarter."
Dive Insight:
Like rival teen apparel retailer American Eagle (and unlike bankrupt and probably defunct rival Aeropostale), Abercrombie has distanced itself from the logo-centric clothing rejected by millennials and says it’s focusing on improving the quality of its apparel.
After years of promising a pivot from its dark, perfumed stores and highly sexualized marketing, the retailer has unveiled a brighter, more streamlined approach. But Columbia University business school retail studies professor Mark Cohen told Retail Dive earlier this year that Abercrombie and its Hollister brand are still trying to figure out what they after CEO Mike Jeffries exited nearly two years ago.
“There’s a massive effort going on to figure out how to position Hollister and Abercrombie, but whether it can be done remains to be seen,” Cohen told Retail Dive.
Abercrombie's new campaign, spearheaded by creative director of marketing Ashley Sargent Price (who recently arrived from J. Crew), features more diverse and clothed models — an approach also reflected in the brand’s more denim-oriented, less logo-centric clothing. The retailer has said the shift also reflects its concerted focus to appeal to college-age and post-college shoppers, and not just the high school teens who’ve been their customer base.
But many observers are questioning that pivot. It could take a lot of time to accomplish, if it’s successful at all, according to Eric Beder of Wunderlich Securities.
The “shift to an older customer makes little sense to us," Beder wrote in a note to clients, Business Insider reports. "While the shift to an older customer is a strategy for Abercrombie, we see limited reasons for older customers to shift back to a 'teen' brand and, frankly, there are better brands and lifestyles for the 20+ customer to focus on.”
The trouble is that those older shoppers that can better afford the higher-priced apparel found at Abercrombie’s mostly mall-based stores, which are also competing with lower-priced, lower quality fast-fashion outlets like H&M and Forever 21, have better choices.
“Once all the rage, Abercrombie & Fitch has fallen into disfavor with youngsters, who are now flocking to cheaper and trendier fare offered by fashion brands such as Forever 21, Zara, and H&M,” investment analyst John Persinos wrote in TheStreet Monday. “Weighing on the entire retail apparel industry are onerous student debts, stubbornly high youth unemployment levels, a tepid economy recovery and competition from e-commerce.”