Getty Images

Abercrombie & Fitch is reorganizing its store fleet, closing three more flagship stores around the world

Abercrombie & Fitch Inc.’s stock cratered 26.5% Wednesday, the biggest one-day percentage decline since the company went public in 1996, but the current pain will be worth the gains from the retailer’s store closure plan, according to GlobalData Retail.

Abercrombie & Fitch

ANF, -26.47%

reported weaker-than-expected fiscal first-quarter same-store sales and offered guidance that was below expectations earlier Tuesday. The retailer said it would close three additional flagship stores in New York City, Fukuoka, Japan and Milan.

In remarks on the company’s earnings call, Chief Executive Fran Horowitz highlighted the importance of the company’s stores and remodeling plans, with 85 “new experiences” coming this year.

The company is also expecting more flagship closures in the future. There have been five since 2017, which leaves 15 flagships around the world.

See: L Brands shares soar on strength of Bath & Body Works but questions about Victoria’s Secret persist

“This is a really nice step forward for the company,” said Scott Lipesky, chief financial officer at Abercrombie & Fitch, adding that the company will focus on “smaller more intimate omnichannel spaces as we move forward.”

Neil Saunders, managing director at GlobalData Retail, highlighted the “modest” sales gains the company reported, up to $734.0 million from $730.9 million last year, which he attributed to the store closures. But this is ultimately a good thing.

“In our view, this selective pruning of the fleet is a necessary measure which, over the medium term, will help improve profitability and allow Abercrombie & Fitch to focus its investments on stores and channels which can truly deliver,” Saunders wrote.

See: Target shoppers who use same-day delivery at urban stores buy five times more items

GlobalData noted the company’s tough year-over-year comparisons and the “much more subdued economic backdrop,” which includes the ongoing trade war with China.

“Overall, Abercrombie & Fitch is on the right track,” Saunders said. “In a turbulent apparel market, Abercrombie & Fitch is a stable company with good prospects.”

Abercrombie & Fitch is joining much of the retail industry in its efforts to transform its store fleet and retail channels to meet the demands of the modern shopper.

Gap Inc.

GPS, -2.53%

has announced hundreds of store closures in addition to an Old Navy spinoff. Nordstrom Inc.

JWN, -1.70%

has introduced local stores and services that cater to luxury customers. Target Corp.

TGT, -1.40%

has introduced small-format urban stores. And Tapestry Inc.’s

TPR, -1.36%

 Coach brand and Capri Holdings Ltd.’s

CPRI, -9.85%

Michael Kors label have pulled back from the wholesale channel in order to grow.

Read: From eyelash extensions to a ride on a slide – department stores rethink what it means to have it all

In addition to the hurdles that arise when a retailer dramatically changes its business, there are challenges with malls, where traffic has declined. Abercrombie & Fitch’s Horowitz said post-Easter mall traffic in the U.S. has been “challenging.”

“We believe that the U.S. consumer, which makes up the majority of our sales remains healthy,” she said, according to a FactSet transcript. “Our traffic has tracked above the mall average but we do not operate in a bubble.”

CFRA maintained its buy opinion and $35 12-month stock price target based on the success so far of its revamp strategy.

“While we recognize challenging mall traffic trends in the U.S., Abercrombie & Fitch continues to trend above peers,” wrote CFRA’s Camilla Yanushevsky. “Our view reflects Abercrombie & Fitch’s ongoing transformation to drive efficiency and our belief that initiatives CEO Fran Horowitz has taken to integrate inclusivity in the value proposition since appointment in 2017 are paying off.”

Abercrombie & Fitch stock is down 8.5% for the year to date while the ProShares Decline of the Retail Stores ETF

EMTY, +2.37%

 is up 6% for the period, the SPDR S&P Retail ETF

XRT, -2.24%

is down 1.2% and the S&P 500 index

SPX, -0.69%

is up nearly 11%.

Source link