Hedge fund SLS Management, LLC publicized a letter written to Abercrombie & Fitch's board, saying “this is the time for buybacks” for the struggling apparel retailer following its failed sale, according to a Tuesday company press release.
An Abercrombie spokesperson told Retail Dive via email "the company maintains open dialogue with and regularly considers the views of its shareholders, including SLS Management."
The company also said on Thursday it’s launching a storefront on Alibaba’s Tmall marketplace on July 26, featuring its flagship brand and its Abercrombie kids brand, the company said in a press release emailed to Retail Dive.
Anyone who bought shares in Abercrombie in anticipation of quick profit-taking as the apparel retailer entertained suitors for a sale, was left holding the bag when the company announced July 10 that it had halted those talks.
That appears to have vexed SLS Portfolio Manager Scott Swid, who in a July 18 letter outlined different possible repurchase and buyback scenarios and value-boosting actions he said the board should consider. He also said that this should include leveraging some of the retailer's valuable real estate. He expressed frustration with what he described as the company’s inaction in protecting shareholders. “Despite [Board Chairman Arthur C.] Martinez's assurance in the Company's press release on July 10, 2017 that the company is taking ‘aggressive action,’ we do not believe the Board has been or is currently being aggressive enough,” he wrote.
While Swid also said “there is a time in every company's life for buybacks and a time for dividends,” Moody’s Investors Service suggested that now is actually not the time for the hedge fund's recommended moves.
“Share buybacks, particularly of the magnitude proposed by SLS Management, would be a very aggressive and credit negative financial policy move," Moody's VP-Senior Analyst Raya Sokolyanska told Retail Dive in an email. "Using up substantially all discretionary domestic cash balances and monetizing non-core assets would erode liquidity for a company whose turnaround is still uncertain, at a time of significant challenges in the apparel retail sector.”
Earlier this year Moody's downgraded Abercrombie due to significant earnings declines and said it expects the retailer to show modestly lower results over the next year, according to an earlier note from Sokolyanska emailed to Retail Dive. The faltering teen retailer, which retains a valuable brand, was apparently piquing the interest of rivals just a few months ago. But, while both Express and American Eagle may have had an opportunity in Abercrombie to broaden their customer bases, all are also feeling the effects of a culling in the junior apparel sector, sparked by falling foot traffic at malls and changing consumer behavior toward online purchasing.
Opening a Tmall storefront continues Abercrombie's assertive push into Asia. The retailer’s Hollister brand, which has helped lift its otherwise dismal sales in recent quarters, has had a successful partnership with Tmall since 2014.
The brand has enjoyed ardor overseas that never cooled quite as much as it did in the U.S. and it's been working to solidify its presence in the region. Last month the retailer announced it will bring its new A&F store concept to Hong Kong’s largest mall, Harbour City, by December — one of six new stores of its kind to open by the end of the year.