Abercrombie & Fitch awash with change, Q1 performance disappoints but comp sales expected to improve later this year

There was much to chew over in the changing and challenging world of Abercrombie & Fitch Thursday – and that was away from a set of trading figures that made painful reading.

A candid chairman Arthur C Martinez talked of a U-turn on logos and a focused marketing campaign this autumn to attract a slightly older demographic for its core signature brand. The brand may also become available on fashion website Asos before too long.

He also said there is still much to be done on the repositioning of both Abercrombie & Fitch and Hollister equally on the design and merchandising fronts.

Oh, and he also admitted in an interview with WWD that it was a “dog eat dog” world in the chase for the Millennial consumer’s wallet. Phew.

So how did the retailer perform? There was a sharp fall in both total and comp sales and a rise in losses for the first full quarterly results since CEO Michael Jeffries left in December. But there were also positive noises about comp sales in the current quarter and beyond. This seemed enough to appease analysts and investors as Abercrombie shares jumped 13.5% to close at $22.30, their largest one-day gain since November 2012.

For Q1 to May 2, the loss widened to $63.2m/91 cents per share from $23.7m/32 cents a year ago. Losses, adjusted for non-recurring costs, were 53 cents per share, much higher than the 34 cents per share loss analysts were expecting.

During the quarter, charges totalled $37.9m of which $26.9 m went to clear non-selling inventory.

Total revenue fell 13.7% to $709.4m from $822.4m a year ago, well below the $733.7m in revenues analysts expected. Meanwhile, same-store sales plunged 8% with Abercrombie comps down 9% but Hollister dipping a better than expected 6%.

Sales at Abercrombie’s international business fell 18%, steeper than an 11% decline in the US. But the retailer noted it has seen a rise in demand in Europe and Asia in the quarter.

Abercrombie, which gets nearly 37 % of its sales from international markets, said it expects a stronger dollar to continue eating into revenue this year.

On the upside, there were some areas of improvement, in particular at younger demographic Hollister brand, it noted

The retailer also said an expected comp-store sales gain in the current Q2 will continue into the back half of the year.

An upbeat Martinez said: “The company continued to take major strides to revitalise its brands, enhance performance and position itself for a return to profitable growth.

“Many of the actions we are taking to improve our business are in the early stages of implementation and have not yet been fully realised.”

He added: “We believe the changes we are making will reinvigorate our brands and lead to meaningful and lasting improvement.”

On the logos issue, the chairman said they would be making a comeback at the Abercrombie brand. However, they will be tweaked to reflect the tastes of the Millennial consumer.

“We’ll have some detailing for the logo product that will be of higher quality. The logo will be subtle and less visible. It won’t be splashed across the chest. Logo product has an important place across the company,” Martinez told WWD.

He also admitted that the company “overreacted” and “took logo product down” too far under Jeffries’ tenure.

While the product mix has improved, there’s still more work to be done on that front, with Martinez noting the changes were more evolution rather than revolution.

“Bottoms have been performing consistently well. This is true for both men’s and women’s. The weakness has been on fashion tops for women and men. Our two brand presidents have been focused on getting that right,” the chairman said in the WWD interview.

It looks like Back-to-School could be a game of two halves with improvements showing late in the season rather than at the start. As the design and merchandising teams learn what is appealing to the Millennial consumer, Martinez said the initiatives are still in the early stages of development, noting that it’ll still take a “couple of months to see it through.”

Meanwhile he also sees the Abercrombie brand less able to be a true teen brand. “The Abercrombie brand can travel a bit up the age scale. It’s still predominantly a casual brand, but now it’s more sophisticated in styling in the design [particularly] on the tops [component] of the business,” he said.

“We have more work to do on the Abercrombie side [due] to some of the historical positioning. We are creating a new positioning and new imagery to target the customer… [You] will see in the fall the new expression for the brand,” Martinez told WWD.

That will have the Abercrombie brand skewing toward the college students, and those slightly older through graduate school, but “not to the mid-30s necessarily,” he added.

On the retailer’s targeted customer, he said: “I think the larger trend of the Millennial consumer spending more on electronics and eating out will continue. It makes the share of wallet available for fashion that much smaller and it will make the competitive game more intense than it has been. That is not favourable for the fashion business.”

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