Abercrombie & Fitch is ready to abandon the mall
Abercrombie & Fitch (NYSE:ANF) seems rather buff these days. While the teen retailer isn’t about to return to the days when shirtless models stood at its doors to lure customers, it’s flexing the retail equivalent of a beach body as it has reported some of its best holiday results in years.
Carrying that newfound confidence, Abercrombie is warning mall owners that he has no qualms about putting them out on the streets if necessary. There seems to be a veiled threat that if she doesn’t get concessions on rents, she’ll happily walk away when her leases expire.
A Very Merry Christmas
Abercrombie managed to achieve what few other retailers were able to do this Christmas: post higher sales. He took advantage of the announcement to also reaffirm his forecasts for the fourth quarter.
The retailer says it expects net sales to be between flat and up 2% for the quarter; comps will also remain stable at 2%, compared to an increase of 3% last year; gross profit will be down 150 basis points from last year’s 59.1% margin; and operating expenses will remain stable at +2%.
Most of the hits Abercrombie takes come from unfavorable exchange rates as well as the effect that tariffs on Chinese goods would impose. The latest round of tariff hikes has hit apparel retail hard.
A return to the glory days
Although CEO Fran Horowitz did not release specific numbers on the results of the holiday sales period, she said in a statement: “We saw record revenue in the United States during the week of Black Friday, which includes the Tuesday before Thanksgiving through Cyber Monday, with the Hollister setting a new all-time high and momentum at Abercrombie as it continues to grow, delivering its highest revenue in more than five years.”
Abercrombie’s turnaround is gaining momentum to such an extent that it now expects the store to surpass its sister chain Hollister in same-store sales and the American company to outpace international markets.
Last quarter, Abercrombie and the US segment saw higher comps than its own Hollister and International markets, respectively, and given their level of decline, the change in fortunes seems truly remarkable.
And you can see that reflected in the comments of Abercrombie’s CFO Scott Lipesky, who took part in a “fireside chat” at this week’s ICR investing conference, where he issued the challenge. veiled to mall operators: “We are ready to pull out of any mall at this point. For us, it’s all about having the right store in the right place and the right size.
Horowitz previously said shrinking the Abercrombie & Fitch store’s footprint was his top priority at the moment. The retailer operates 677 stores in the United States, of which 400 are Hollister and 277 are Abercrombie stores. It operates an additional 200 combined stores in international markets.
The CEO has already begun the process of winnowing the retailer’s flagship stores, closing locations last year in New York, Milan and Fukuoka, Japan as their leases expire. It started 2019 with 19 flagship stores and hopes to come out of 2020 with just 12. As Lipesky told the ICR conference, “The customer has changed so much. We don’t need these big stores long term.
The rest of his footprint is also up for grabs.
In the driver’s seat
Every two years, about half of the retailer’s store leases have to be renewed, which should give Abercrombie & Fitch considerable leverage in its relationship with its landlords. With a record number of store closures last year and the next wave of closures already underway, the retailer may have more than a few mall operators open to listen.
Because consumers have changed their buying habits, retailers must respond to these new preferences – and Abercrombie has finally done it. He has updated his model and e-commerce now accounts for around 30% of sales, which means he is not so reliant on the mall.
Malls are also adapting to the new landscape, adding more restaurants and experiential opportunities to offset retail vacancies. But after going to such lengths to sculpt their beachy body, Abercrombie & Fitch now wants to show it off. And malls will be ready to watch.
10 stocks we prefer to Abercrombie & Fitch
When investment geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*
David and Tom just revealed what they think are the ten best stocks investors can buy right now…and Abercrombie & Fitch wasn’t one of them! That’s right – they think these 10 stocks are even better buys.
View all 10 stocks
* Portfolio Advisor Returns as of December 1, 2019
Rich Duprey has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.