Profits fall again at Abercrombie & Fitch

 
Emma Haslett
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The brand is known for its scantily-clad models (Source: Getty)

The figures

It turns out sex doesn't necessarily sell. Figures posted today show profits at the clothing retailer, known for its preppy style and beautiful, often scantily-clad staff, fell by nearly a third to $44m, or 63 cents per diluted share, in the three months to the end of January.

Net sales were also down, by 14 per cent, a bigger than drop than analysts expected, although its store and distribution costs fell 12 per cent - dead on expectations - while margins rose to 60.9 per cent.

Internationally, sales fell 17 per cent.

Why it's interesting

It's been a tough few years for the retailer, which was once a favourite among teenagers, with queues regularly forming outside both its Abercrombie & Fitch and Hollister-branded stores at London's Westfield shopping centre.

But as any parent will tell you, adolescents are a fickle bunch. In recent years, the popular crowd has moved to the next fad, leaving Abercrombie clamouring to change its model. In December Mike Jeffries, who was widely credited for reviving the brand, was ousted as chief executive. The company has yet to find a replacement, which even those with a loose grasp of corporate governance realise is not particularly advisable.

Still, there's no time like the present - despite its dearth of leadership, the company has taken the decision to phase out the logos on its clothing in the hopes of regaining that lucrative teenage market. That has yet to have much of an effect. Perhaps teens have finally tired of comparing themselves to those models...

What Abercrombie & Fitch said

Executive chairman Arthur Martinez:
2014 was a year of significant change for Abercrombie & Fitch. I believe these changes put us on the right path to improve profitability and deliver value to shareholders.
Our 2015 priorities are clear. First, we need to improve comparable sales trends in both our U.S. and international stores driven by an evolved assortment and an increased focus on the customer experience. Second, we will make further strategic investments in our successful DTC and omni-channel business. Third, we will continue to seek ways to reduce expenses and be more efficient. Finally, we will selectively expand our international footprint in high growth markets.
We expect the first half of 2015 to remain challenging, with declines in our logo business in 2014 persisting in the early part of 2015, but at reduced rates, as well as significant currency pressure. However, we believe that the benefits of all of the changes we have made will be reflected in improved performance in the second half of the year.

In short

Abercrombie has failed to keep up with teenagers' changing tastes, and without a chief executive, things look bleak. But the retailer insists that by cutting costs and focusing on customer experience, it can pull itself up.

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