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I wrote a blog Wednesday calling out U.S. retailers at risk in Europe in anticipation of retail earnings season. Abercrombie & Fitch was on that list, but for a different reason than the rest of the pack.
While the average retailer in the U.K. ran discounts in the 30 percent to 50 percent range during June-July clearance period, the Abercrombie brand stubbornly stayed on the sidelines. My concerns about Abercrombie refusing to “play the game” showed up in Wednesday’s announcement. International same-store sales are down a jaw dropping 26 percent. As a reminder, management guided to down mid-teens for the quarter.
Abercrombie does use the promotional lever in the U.S. It may be time to join the ranks in Europe.
Abercrombie has other issues in Europe besides scaring customers with hefty price tags, and not keeping pace with the neighboring “sale” signs in the window. Cannibalization is also an issue after a torrid pace of flagship and Hollister openings. Turns out, a 26-percent decline in same-store sales is enough for management to rethink Europe. Flagship expansion is now on hold, and Shanghai and Hollister openings will slow. Annual guidance comes down to $2.50 to $2.75 a share, compared with the Street's average estimate of $3.35 a share.
Now that the European cat is out of the bag who could be next?
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