Why Abercrombie's soaring shares are deceptive

AbercrombieFacebook/Abercrombie & FitchAbercrombie & Fitch’s comeback strategy has a flaw.

Abercrombie & Fitch shares skyrocketed as much as 12% Wednesday after the company reported quarterly revenue that fell less than expected.

The chain’s sales for its second quarter fell to $US817.8 million from $US890.6 million. Analysts had predicted $US811.3 million in revenue.

Abercrombie’s same-store sales declines also showed signs of improvement. Sales at stores open at least a year dropped 4% during the quarter, compared to an 8% decline in the first quarter.

But Abercrombie’s turnaround is still uncertain — especially when it comes to the company’s namesake brand, according to analysts.

In updating its clothing styles to resonate with modern teens, the company is veering too far into fast-fashion territory, according to Neil Saunders, CEO of retail advisory firm Conlumino

“The company has, of course, already taken corrective action with the removal of some logoed product and a slightly cleaner, urban look for its menswear collections,” Saunders writes in a recent note. “However, this does not really go far enough and, indeed, the net impact has been to leave the fall collection looking ill-defined, bland and basic. This is dangerous territory, not least because it nudges A&F towards the competitive space of H&M and Forever 21 — a place where its prices do not compare favourably.”

Abercrombie is also still in “desperate” need of a brand identity, according to Saunders.

“As much as we are encouraged by these technical changes, we are more concerned over the emotional shift that A&F needs to make in order to reconnect its brand and its products with consumers, especially so for Abercrombie,” Saunders writes. “While there have been some minor victories — such as the introduction of a new athleisure range which gives a nod to A&F’s collegiate style heritage — there is still a sense that Abercrombie is a brand in desperate search of an identity.”

Abercrombie has pared down on the visible logos that defined its clothes in the early aughts and it has been redesigning its stores to be a brighter, more relaxing place to shop.

The brand has also been trying to offer a more fashionable assortment similar to the cheap, trendy styles found at Forever 21 and H&M. But as we reported in May, some of Abercrombie’s clothes cost more than its fast-fashion competitors. Here’s an example:

Abercrombie has also launched a new line of activewear that looks similar to styles offered by the popular sportswear brand Lululemon.
The chain is smart to get into activewear. It’s one of the fastest-growing segments of the apparel business.


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