The foreign tourists who line up at Abercrombie & Fitch are increasingly nervous about spending money — and that could hurt the brand’s turnaround.
The euro’s value against the dollar has declined steadily in recent years, which means that European tourists aren’t shopping as much, Eric Beder, analyst at Wunderlich Securities, wrote in a recent note to clients.
“With [foreign exchange] still a key issue, and tourist traffic remaining a negative, we continue to be cautious on ANF and believe the company still faces a number of key issues in terms of fashion outlook, productivity and an overall weak teen segment to overcome before regaining anything similar to a premium multiple,” Beder said.
The tourist traffic is crucial — even if Abercrombie & Fitch is America’s most hated retail brand, tourists appeared to love it. If they’re abandoning Abercrombie & Fitch, that could only spell more trouble for the company.
A few years ago, tourists were a big component to the company’s success. The Wall Street Journal highlighted why, exactly, tourists would wait in line to enter New York City’s flagship store.
Beder is not convinced that the company is making a total comeback just yet.
“That said, we have seen the Street continue to accept virtually any level of mediocrity from the company as a ‘come back;’ we are not convinced, and remain on the sidelines,” he wrote.
Abercrombie & Fitch has been working to repair its reputation to get people in the United States to love the brand again, but the brand faces steep opposition. Earlier this year, the retailer got the lowest score out of all specialty retailers on the American Consumer Satisfaction Index‘s ranking.
“It was a reality check for us that we have a long way to go to really elevate the experience to be best in class,” Chairman Arthur Martinez told Business Insider in March.
But he said that “when that survey is done again, we’ll be much further up the charts.”
On the surface, things appear to be paying off. Sales have been slowly climbing out of the grave and its styles have slowly turned to a more streamlined look. It has eschewed its old, overtly sexual advertising for more toned down campaigns.
Last quarter, the company posted its first positive quarter since 2012 — but it was largely thanks to Hollister, the company’s better-performing younger surfer brother. Beder believes that Hollister is still the brand that’s leading the way.
“Expect Hollister to be the most advanced of the chains, while Abercrombie still remains very much a work in progress,” Beder writes. “We believe their still remains material work to do in terms of offering the right mix of fashion and logo product and finding the right pricing mix; we remain wary that the company has the right mix to register better returns and margins in the near term.”
The company releases its earnings for the first quarter of fiscal 2016 on Thursday.
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