Abercrombie's Earnings Plunge As Teen Retailer's Struggles Continue

by tordaro23 Thu Nov 14, 2013 3:17 am

A&F's shares plummeted Thursday after the store chain reported a 33 percent drop in second-quarter profit and warned that business would get even worse in the current quarter, which includes the final stretch of the back-to-school selling period. The teen retailer's results missed analysts' estimates and its third-quarter earnings forecast came in well below Wall Street expectations.The stock tumbled nearly 18 percent, or $8.27, to close at $38.53.

Teen abercrombie and fitch uk retailers have struggled during their most recent quarter. Their customer base can be fickle, with constantly changing tastes in fashion and promotions causing shopper loyalty to wane.In addition, many teens' clothing purchases are tied closely to how much their parents are willing to spend – and lately that's not much. Shoppers have been increasingly cautious as they continue to deal with uncertain economic conditions and absorb a 2 percentage-point increase in the Social Security payroll tax. A shift in spending toward cars and home improvement is also leaving little left to spend on clothing and other purchases.Moreover, teens are also facing scarce opportunities for summer jobs or part-time work during the school year. That leaves them short of the extra pocket money to finance a new pair of jeans or leggings.

"The second quarter proved to be more difficult than expected due to weaker traffic particularly in July, and continued softness in the female business," Mike Jeffries, chairman and CEO of abercrombie and fitch, said during a conference call with investors. "The reasons for the weak traffic are not entirely clear. Our best theory is that while consumers in general are feeling better about the overall economic environment, it is less the case for the young consumer."Executives also note that that youth spending appears to be going toward other categories like tablets and consumer electronics. As a result, the company has been paring back winter holiday orders over the last few weeks, says Jonathan Ramsden, A&F's chief financial officer.

A day earlier, competitor American Eagle Outfitters Inc. posted weak second-quarter results on a similar drop in traffic and difficulty in its women's business. The retailer also gave a third-quarter profit forecast short of analysts' expectations.
Another teen standby, Aeropostale Inc., on Thursday posted a loss for its latest quarter due to poor sales. It issued a weak outlook and increased the number of abercrombie and fitch outlet stores that it plans to close. The company had already warned investors to expect a bigger loss because it had to mark down more clothing because of weak demand.