New Albany, OH—Shares of Abercrombie & Fitch dropped 17.7%–losing some $650 million in value—during trading Thursday after the teen retailer said its second quarter profit plunged 33%. To compound things, the retailer projected its third quarter (back to school) earnings well below forecasts.
For the quarter ended August 3, Abercrombie said it earned $11.4 million, or 14 cents a share, compared with a profit of $17.1 million, or 20 cents a share, a year earlier. Excluding one-time items, adjusted earnings were 16 cents a share, widely missing analysts’ forecasts for 28 cents.
Net revenue edged down 0.6% to $945.7 million, missing analysts’ view of $996.2 million in sales. Comparable store sales fell 10%, far worse than the 2.5% decline analysts’ forecast. International sales were down 7%.
By retail brand, Abercrombie & Fitch stores had a 6% drop in comp sales, while Abercrombie Kids fell 3% and Hollister was down 13%.
Abercrombie executives blamed the disappointing performance to fewer shoppers hitting malls during the summer, a common complaint among retailers reporting their quarterly earnings this week.
No Longer Cool with the ‘Good-Looking People’?
“The second quarter was more difficult than expected due to weaker traffic and continued softness in the female business, consistent with what others have reported,” CEO Mike Jeffries said. “In that context we are planning sales, inventory and expenses conservatively for the remainder of the year.”
For its third quarter, the crucial back-to-school season, the company gave a disappointing 40 cents a share earnings projection, a far cry from the $1.06 a share that analysts’ expect. Moreover, citing “due to a lack of visibility given recent traffic trends,” the company declined to provide a forecast beyond the third quarter.
Although many retailers so far have reported lower earnings or sales in the second quarter, some analysts believe Abercrombie’s reputation as a preppy stronghold is waning.
Others blame the troubles on widely publicized comments Jeffries made in an interview in 2006 which came back to haunt the company this year when a retail consultant said the retailer doesn’t carry XL and XXL sizes for women because it doesn’t want to pursue “plus sized” business that isn’t “cool” with teens.
In that interview with Salon.com, Jeffries explained the company’s policy of hiring “good-looking people” because they attract “other good-looking people, and we want to market to cool, good looking people.”
But much of Abercrombie’s current problems may have to do more with macroeconomics and the bottom-of-the-wrung position that many of its customers find themselves in.
Paul Harrington, a professor of education at Drexel University, explained: “Kids are at the bottom of the labor queue, so if you don’t get a strong recovery it just doesn’t reach down to kids.”
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