Teen retailer Abercrombie & Fitch reported another quarter of dismal sales Wednesday, while peer and rival American Eagle saw better momentum in posting increasing sales and profit for the key holiday period. Here are the key points from the latest earnings reports from Abercrombie and American Eagle.
What you need to know: Both teen retailers faced challenges in the holiday period. Abercrombie’s (ANF) same-store sales slid 10% across the entire company, including a 6% drop in the U.S. and a steeper 17% decline internationally. Analysts surveyed by Consensus Metrix had anticipated a 8.2% drop overall. At American Eagle (AEO), same-store sales were flat, which was better than the 1.8% decline anticipated by Wall Street analysts.
The two teen retailers, along with a third rival Aeropostale (ARO), have faced pressure from fast-fashion chains such as Forever 21 and H&M. Their logo-adorned shirts and apparel have generally fallen out of style as today’s teens want more unique pieces from retailers that can churn out on-trend designs at a faster pace. The teen retailers have sought to trim their inventories to bolster profitability and rely less on markdowns, while also aiming to better meet current fashion trends.
To further highlight the challenges at Abercrombie and American Eagle: neither are currently operating with a permanent CEO.
The big number: Net sales slid 14% to $1.12 billion for the quarter ended Jan. 31 at Abercrombie, while revenue increased 3% to $1.07 billion for American Eagle. Net income increased at American Eagle but declined at Abercrombie.
What you might have missed: Gross margins, one of the most important metrics retailers report, improved greatly in the fourth quarter as a result of lean inventory management. A year ago, the teen retailers entered the holiday season with too much merchandise, which led to steep discounts. But the retailers knew they were in trouble last year and cut inventories leading into the holiday season. In the third quarter, Abercrombie and Aeropostale inventories were each down 20% from a year ago, while American Eagle’s were 10% lower.
The retailers were rewarded in the final quarter. Gross margin improved to 60.9% from 59% at Abercrombie. American Eagle’s growth was even more dramatic, jumping to 35.1% from 29.4%.
“We’re encouraged to see momentum continue into the spring season,” said American Eagle interim CEO Jay Schottenstein. “We have significant opportunity for earnings recovery. While we fully recognize the volatility within our sector, I believe we are very well positioned.”