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At Abercrombie & Fitch, It's Going to Get Worse Before It Gets Better

The teen retailer's sales sunk 13 percent for the third quarter.
Photo: Rodrigo Vaz/FilmMagic

Photo: Rodrigo Vaz/FilmMagic

It's been seven months since Abercrombie & Fitch poached Creative Director of Marketing Ashley Sargent Price from J.Crew, and just five weeks since it completely wiped its Instagram account in favor of a fresh digital start. The fledging teen retailer has been entrenched in a top-to-bottom rebrand for the last 18 months, and for a moment, it looked like its efforts were beginning to pay off: In the fourth quarter of 2015, its revenue grew for the first time in three years. But on Friday, the brand (including Abercrombie Kids) reported that in the third quarter of fiscal 2016, sales had once again returned to a steep decline.

In the three months ending on Sept. 30, net sales decreased 13 percent to $358.3 million. Meanwhile, by geography, net sales slipped 7 percent to $531.4 million in the U.S. and 5 percent to $290.3 million in the international markets. (This does not include Hollister Co., which falls under the A&F umbrella and fared better than its sister brand with just a 1 percent decrease in net sales over last year.)

So, what happened? Let's start by looking at A&F's second quarter performance, in which the brand reported a 7-percent revenue decline in the three months ending July 30, clocking in at $363.1 million. CFO Joanne Crevoiserat explained then that due to the size and nature of the brand's refresh, the team expected comparable sales to be disappointing for the rest of the year. After all, an overhaul as dramatic as A&F's — which includes upgrading the product, modernizing the in-store experience and firming up its marketing efforts — takes time.

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On Friday's call with investors, executives did note "significant strategic and operational progress," especially with Hollister, in the third quarter, and are eager to apply this learning to the A&F brand. Execs assured listeners that these improvements will be more apparent in future quarters. It wasn't all bad, though: For one thing, A&F already saw traction being made in two crucial categories — sweaters and knitwear for women and tanks and tees for men — in which it plans to invest going forward.

All this is to say that, yes, it's going to get worse before it gets better, and there's certainly a lot of work to be done before A&F is able to get back on its feet. But, hey, at least it's headed in the right direction.

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