Abercrombie & Fitch
) struggled through most of last year, the holiday season wasn't as
bad as expected. The company recently provided a business update
stating that its comparable sales in the U.S. in November and
December declined by only 6%, which was much better-than-expected.
Abercrombie also increased its EPS guidance for the full year from
$1.40-$1.50 to $1.55-$1.65. The company's shares have gone up by
almost 8% since this news came out.
Abercrombie will be encouraged by these results given that the
holiday season wasn't particularly good for U.S. apparel retailers.
There was a significant decline in foot traffic due to cautious
consumer spending and extreme weather conditions. However, this
decline somewhat complemented the rise in web traffic, as buyers
stayed home and bought online. This boosted Abercrombie's
e-commerce sales and provided it with some resilience against the
Although the company is still far from a complete turnaround in
its business, it has started well. It will be interesting to see if
its comparable sales can continue to improve in January.
Our price estimate for Abercrombie & Fitch
stands at $37.62
, implying a premium of about 5% to the market price.
See our complete analysis for Abercrombie &
U.S. Holiday Season Was Marked By Sharp Traffic
Pressured by the sluggish economic environment, U.S. buyers were
extremely cautious about spending last year. This was clearly
visible in the recently concluded holiday season as the U.S. retail
industry saw its weakest growth since 2009. Moreover, extreme
weather conditions prevented buyers from completing their shopping.
As a result, U.S. foot traffic declined by 19.9% for the week ended
on December 15, and 21% for the week through to December 22.
ShopperTrak had also predicted 10% fewer customers for Christmas
2013 as compared to the same holiday last year.
Overall, foot traffic during the holiday season decreased by a
staggering 14.6%, which was significantly higher than ShopperTrak's
prediction of 1.4% decline. Moreover, while U.S. buyers spent
freely on electronics, furniture and building materials, they were
hesitant to spend on clothing. According to a Reuters poll
conducted before the holiday season, about 27% of the consumers
were planning to lower their spending on apparel this holiday
season. Therefore, it is quite clear that 2013 holiday season
wasn't the best one for apparel retailers.
Rise In Online Sales Helped Abercrombie Offset The Impact
Of Traffic Decline
While store traffic was substantially down as compared to last
year, holiday retail sales in the U.S. managed a modest growth of
2.7% primarily driven by a surge in online orders. This is evident
from the fact that United Parcel Service (
), which is one of the biggest players in retail e-commerce
delivery, struggled to ship orders before Christmas.. Retailers who
manage to attract significant web traffic enjoyed this trend, while
those who don't, struggled.
Although e-commerce isn't the biggest business for Abercrombie,
it did help the company offset the impact of low store traffic. The
retailer's direct-to-consumer sales increased by 25% during the
months of November and December. Interestingly, total online sales
accounted for 25% of Abercrombie's revenues in December, while this
figure is usually around 16%. This is a very encouraging scenario
for the company that can boost its recovery process. Going forward,
Abercrombie should leverage the strength in its e-commerce channel
to take advantage of the online retail boom. Alongside, it needs to
enhance its speed-to-market to provide fashion relevant products in
a timely manner, and keep its inventory under control.
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