Coverage: Abercrombie’s stock falls 25% on slow sales

Abercrombie & Fitch Co.’s shares fell 25% percent on Wednesday after the apparel company forecast second-quarter sales below estimates amid slowing demand for Hollister, a brand that has fueled company growth over the last two years.

Uday Sampath Kumar of Reuters had the news:

The company also said it would close three flagship stores, including a Hollister store in SoHo, New York City, incurring about $45 million of lease-related charges in the second quarter.

Surf-themed Hollister has been a bright spot for the company as its casual and fun apparel gained popularity among young shoppers, who had previously abandoned flagship brand, Abercrombie, after its logo-emblazoned tees fell out of fashion.

However, the company’s most recent results showed that demand for Hollister was slowing, with its same-store sales rising just 2% in the quarter ended May 4, missing the average analyst estimate of a 3.3% increase, according to Refinitiv IBES data.

A year ago, Hollister’s quarterly same-store sales rose 6%.

Lauren Thomas of CNBC.com reported that the company sees smaller stores in its future:

“What we’ve learned from the consumer is they are really enjoying the smaller spaces,” CEO Fran Horowitz said in an interview. “There is a more intimate feel to it. … And the customer likes that one-on-one interaction.”

The decision to close three more flagships — a Hollister location in New York, and an Abercrombie store in Japan and one in Milan — was because that’s a format Abercrombie’s customer is “not responding to today,” she added.

Instead, Abercrombie will do 85 store redesigns in 2019, including some for its Hollister brand, after doing 70 in 2018. This entails the apparel retailer either closing a bigger store in a mall and opening a smaller one nearby, chopping up a bigger store to take up less square footage, or opening up a small-format location in an entirely new market.

In some instances, Abercrombie is also testing pop-up shops — recently it did a short-term deal at Roosevelt Field Mall in Garden City, New York, to test that market.

Katherine Lam of Fox Business reported that the company has closed five flagship stores since 2017:

Horowitz said the company will close three more flagship stores including a Hollister, the company’s California-themed brand, in New York City’s SoHo neighborhood. The flagship Abercrombie & Fitch locations in Milan, Italy, and Fukuoka, Japan are also expected to close by the end of 2019 and the first half of 2020.

The Hollister flagship is expected to shutter its doors by the end of 2019’s second fiscal quarter.

Abercrombie & Fitch has closed five flagship stores since 2017. The company said the New York, Milan, and Fukuoka stores, along with the Copenhagen location that closed in March, represented less than 1 percent of total net sales. The company said in a call with analysts on Wednesday that it expects to close more flagship stores in the future.

Abercrombie shares have risen 25 percent since the beginning of the year but the stock has declined 1 percent in the last 12 months.