Dismal Q2 puts Abercrombie turnaround in question; to close more stores

Abercrombie & Fitch Co.’s turnaround was called in to question on Tuesday as the chain posted a wider loss in its second quarter, hurt by a decline in tourist traffic at its flagship locations.



The teen apparel retailer also revealed that it expects to close up to 60 U.S. stores as their leases expire this fiscal year. On its quarterly conference call, company executives said the chain has flexibility to close even more stores, with about half of its U.S. leases expiring by the end of 2017, the Wall Street Journal reported.



Abercrombie reported a net loss of $13.1 million, or 19 cents a share, for the period ended July 30, compared with $0.8 million, or 1 cent, a year ago. Analysts had expected a loss of 20 cents a share on $783 million of revenue.



Total revenue decreased 4% to $783.2 million for the quarter. One bright spot was the retailer’s online business. Direct-to-consumer sales grew to approximately 23% of total company sales for the second quarter, up from 21% for the year-ago period.



Abercrombie’s total same-store sales were down 4.0%, matching the first quarter decline and the results in the same period last year.



“Flagship and tourist locations continued to account for the vast majority of the comparable sales decline as traffic remained a significant headwind,” said executive chairman Arthur Martinez.



The company expects these challenges will be ongoing through the rest of the year.



“As we look to the rest of the year, we now expect flagship and tourist locations will continue to weigh on the business,” Martinez said. “Recognizing we are in a challenging environment, we are confident, however, that we are focusing on the right priorities and we expect to see traction in our business as we introduce new product and invest in marketing to drive awareness and relevance for our brands."



The retailer said that it has begun to roll out programs that reflect new brand positions for both Abercrombie and Hollister. Abercrombie has been remodeling Hollister and is set to unveil a new store prototype for its namesake brand.



“We look forward to strengthening our brands as we express these positionings across all customer touch points,” Martinez said.



Abercrombie plans to open approximately 15 new stores in fiscal 2016, including approximately 10 in international markets, primarily China, and approximately five in the U.S.



At the end of the second quarter, the company operated 744 stores in the United States and 182 stores across Canada, Europe, Asia and the Middle East.