Abercrombie & Fitch – Cautious, but closer to the upturn

Like all exceptional customer products, abercrombie and fitch’s (ANF) sales hit a brick bank in the deathwatch of the GFC. After carrying years of abiding profitability, the company’s aftereffect for the abounding year to December registered a affecting downturn. This alone got worse in the aperture division of 2009, with an accidental annual accident blotting abercrombie and fitch’s copybook.

As we discussed in our antecedent analysis admitting (see FAT169 for details), A&F is a well-managed business with a advantageous antithesis breadth and able brands that will affirm approaching advance as the accretion assets traction. The company’s accepted aeon of weakness boils down to an assured aftereffect from a alternate downturn, rather than a axiological change in trend.

In agreement of the latest second-quarter result, aforementioned abundance sales fell 30% through the three months to August 1 2009, in allegory to the aforementioned aeon endure year. Absolute abundance sales apprenticed by 23%, from $845.8 actor to $648.5 million.

While the gross accumulation allowance charcoal a advantageous 66.5% for the period, margins attenuated rapidly through to the basal line. Management’s cost-saving initiatives accept bargain a amount of capricious costs, primarily in the breadth of staffing. However, these cuts accept not accepted acceptable to account the debilitating appulse of crumbling sales in the face of college hire and abrasion expenses.

The aggregation aswell suffered appreciably from the appulse of non-operating costs, with the avenue of the Ruehl business incurring $23 actor of charter abortion fees. This served to bang abercrombie and fitch’s basal band balance to a accident of $26.7 million. Management expects the Ruehl cease to accomplish absolute costs of $65 million, with the actual $42 actor hitting the balance through the additional half.

As Members may recall, the accommodation to barrage the high-end Ruehl cast represents a abandoned birthmark on CEO Mike Jefferies contrarily categorical record. abercrombie and fitchlaunched Ruehl in 2004, aiming to abduction the aspirational New York City affairs for females. Perhaps a bigger name would accept been “Sex and the City Accessories”. Either way, the cast bootless to accretion absorption and the GFC after snuffed out any abreast appellation adventitious of success. Management appear the cease of the 29 loss-making food in June 2009.

Despite the setback from Ruehl, the aggregation all-embracing is expanding, with an accepted nine food aperture aural the US through the advance of 2009. This includes two Abercrombie, four Hollister, one Gilly Hicks, and two aperture stores.

In agreement of management’s all-embracing advance strategy, the aperture of the flagship Milan food is on clue for October, and December in Tokyo. The aggregation aswell has a growing attendance in Europe, with seven Hollister mall-based food in the UK, one in Germany, and addition in Rome.

Encouragingly, the all-embracing food are proving acknowledged through the aforementioned basal archetypal as their calm counterparts. There is no aberration in agreement of the retail acquaintance amid London for archetype and New York. This highlights the built-in amount of the abercrombie and fitch brands. Moreover, the all-embracing amplification action is easier and accordingly beneath risky, accustomed that there is no cogent charge for a altered admission to alone markets.

To admission added adulatory analysis letters from Fat Prophets bang here.