Retail sector tumbles, led by Abercrombie & Fitch

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May 29, 2019 7:05pm NYSE:XRT

NYSE:XRT | News, Ratings, and Charts

From Andria Cheng:

Abercrombie & Fitch shares slumped 25% Wednesday after the clothing retailer reported disappointing sales growth and outlook and said it will shut another three flagship stores.

The mega-stores to be shut include Hollister’s four-story location in New York’s Soho, and A&F stores in Milan and Fukuoka, Japan.  Those stores, including a Copenhagen flagship that was closed, totaled less than 1% of the company’s $3.6 billion in sales last year. However, in a glaring contrast, store closing-related one-time costs alone would be $45 million this quarter.

The New Albany, Ohio-based company also has shut a flagship in Hong Kong.

“Flagship business is a drag on topline and bottom line,” CFO Scott Lipesky said on a conference call Wednesday, adding about 15 remaining flagships combined also are a burden on results, without detailing any plans for future potential store closings. “Each store has its own story….There’s not a silver bullet.”

Abercrombie’s flagship closings reflect a familiar industry pattern as retailers wake up to a sobering reality: Mega flagships in expensive and high-traffic neighborhoods don’t translate to sales, let alone profit. For instance, Gap, Ralph Lauren and Lord & Taylor have all shut their Fifth Avenue flagships in New York even as better-performing brands including Nike, Vans and discount store Five Below have moved in.

Instead, Abercrombie, like many other retailers, is going small and local and “more intimate” with stores that combine integrated web services such as pick up in store for online orders.

Under CEO Fran Horowitz, the retailer also has removed dark shutters to make its stores brighter and did away with topless male models that once were a highlight at the front of its stores. Its once sexualized marketing campaigns also have shifted to more inclusive messages and wholesome images and have given its teen and young millennial customers more say, another common industry trend.

The SPDR S&P Retail ETF (XRT) . Year-to-date, XRT has declined -10.10%, versus a 4.69% rise in the benchmark S&P 500 index during the same period.

XRT currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 41 ETFs in the Consumer-Focused ETFs category.

This article is brought to you courtesy of Forbes.

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