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Last updated: February 22, 2013 7:01 pm
Abercrombie & Fitch said it would close 40 to 50 stores in the US this year as the youth fashion retailer’s shares tumbled following weak sales in the crucial Christmas quarter.
Like-for-like sales fell 1 per cent at Abercrombie & Fitch’s US stores in the three months to February 2, extending previous declines in an intensely competitive sector where its rivals include American Eagle, Aéropostale and Forever 21.
The Ohio-based retailer, known for its thumping in-store music and scantily clad male door staff, said direct sales to US consumers, which include its ecommerce unit, rose 5 per cent, although they remain a small part of its business.
In an attempt to offset slower US growth, Abercrombie, which operates namesake stores as well as surf-themed Hollister and Abercrombie Kids, has made a big push overseas and online.
But its international segment performed even more poorly than the domestic stores, with like-for-like sales down 14 per cent.
“The earnings report was just one big giant pool of negativity,” said Brian Sozzi, chief equities analyst at NBG Productions. “Sales did not meet expectations, particularly in its international segment, and the company offered cautious comments on its first-quarter outlook. This is just something the market did not want to hear.”
“Also the company is looking to take prices up. The reason why Abercrombie had done better in recent months was because they had become more competitive on prices, so this is a big concern,” he added.
Despite lower than expected sales, Abercrombie’s net profits of $157m were well ahead of $46m a year ago, beating expectations thanks to lower cotton costs and less drastic clearance discounts than it had offered in the previous year.
But its latest quarterly profits were overshadowed by Abercrombie’s earnings guidance for the current financial year. It said it expected earnings per share to increase by 15 to 19 per cent, less than Wall Street forecasts for a 21 per cent rise. The group’s shares slid 7.2 per cent to $45.54 by early afternoon in New York.
“Our profitability is not where it needs to be,” said Mike Jeffries, chief executive, on an earnings call with analysts, highlighting “a challenging US retail environment over the holiday period.”
The announcement that Abercrombie would close 40 to 50 of its 900-plus US stores – primarily by allowing leases to expire – comes as analysts say that US retailers have more stores than they need in a weak economy where ecommerce continues to grow.
“It is unknown how the customer will respond to the economic situation,” said Oliver Chen, analyst at Citi Investment Research. “The impact of the payroll tax, elevated gas prices and continued macroeconomic uncertainty all led to weaker guidance.”
Sales in its direct-to-consumer business rose 52 per cent while total group sales increased 11 per cent to $1.5bn.
Its gross margin widened to 63.4 per cent from 59.5 per cent.
The company raised its quarterly dividend from 17.5 to 20 cents a share.
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