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Abercrombie Falls After Tourism Pullback Weighs on Results

Abercrombie & Fitch fell as much as 18 percent after slow sales at flagship locations weighed on its latest results and outlook, sparking concerns that its turnaround is sputtering.
Source: Abercrombie & Fitch
By
  • Bloomberg

NEW ALBANY, United States — Abercrombie & Fitch Co. fell as much as 18 percent after slow sales at flagship locations weighed on its latest results and outlook, sparking concerns that its turnaround is sputtering.

The loss in the second quarter was 25 cents a share, excluding some items, the New Albany, Ohio-based company said in a statement Tuesday. Analysts projected a loss of 20 cents, on average. The company also announced plans to close more stores, extending a push that has shrunk the chain by a third in the past six years.

The results show Abercrombie is struggling with a tourism slowdown that has hurt retailers who rely on large, flagship locations in major cities to drive sales. Tiffany & Co. and Michael Kors Holdings Ltd. also have attributed recent weakness to slower spending by travellers, who've been discouraged from visiting the US by the dollar's strength and global economic uncertainty. For Abercrombie, the trend contributed to a 4 percent drop in comparable sales, which was worse than the 3.8 percent analysts estimated.

“Flagship and tourist locations continued to account for the vast majority of the comparable sales decline as traffic remained a significant headwind,” executive chairman Arthur Martinez said in the statement. He said the company expects those stores to continue to weigh on the business for the rest of the year.

Sales Slide

The shares slid as low as $18.83 in New York, the biggest intraday decline since May 26. Abercrombie already had dropped 15 percent this year through Monday’s close.

Abercrombie, once one of the hottest stores at the mall, has struggled to reconnect with young shoppers. It also has not had a permanent chief executive officer since longtime leader Mike Jeffries stepped down in late 2014, leaving investors to wonder about the company’s long-term vision. Chief merchandising officer Fran Horowitz is seen as the heir apparent, but Abercrombie has yet to make a decision on its next chief executive officer. Total sales fell 4.2 percent to $783.2 million in the second quarter, missing analysts’ $783.6 million projection.

Abercrombie said Tuesday that it plans to close as many as 60 stores in the US as their leases expire this fiscal year. The company will open five new stores in the US and 10 locations in international markets, mostly in China. Abercrombie also is opening six new outlet stores, mostly in the domestic market. At the end of the second quarter, the company had 744 stores in the US and 182 abroad.

Executives said on a conference call that the company has flexibility to close more stores, with about half of its US leases expiring by the end of 2017.

In the meantime, the chain has fallen off the radar for many consumers.

"The company needs to generate renewed awareness and traffic," Oliver Chen, an analyst at Cowen & Co., said in a report.

By Kevin Orland; editors: Nick Turner and Kevin Orland.

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