Abercrombie & Fitch Co. (ANF); The Fickle World of Fashion

Page 1 of 2

Try as I might, there is no way that I can possibly keep up with the world of fashion — although it is not my job. However, it is the job of fashion brand Abercrombie & Fitch Co. (NYSE:ANF) and it would appear that they don’t really know how to do it either.

Abercrombie & Fitch Co. (NYSE:ANF)

I’m talking here about inventory levels, in particular, abnormally high or low inventory levels that force the company to discount heavily to try and shift unwanted stock. This was an issue Abercrombie & Fitch Co. (NYSE:ANF) had back in early 2012 as the company’s clientele put off purchases due to weather, fashion trend and cost issues.

As the chart shows in the Fourth Quarter (Q4) of 2011 the company had abnormally high level of inventory, selling this off at discounted prices pushed down the company’s Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margin, eventually pushing the company into a loss.

The chart also shows falling levels of inventory at the beginning of this year as the company has focused on inventory control to keep margins and profits high. Matching inventory levels to sales = stronger profits.

It’s not just Abercrombie

It is not just Abercrombie & Fitch Co. (NYSE:ANF) that has had a problem with its level of inventory and changing consumer habits. Abercrombie’s close competitor’s Guess?, Inc. (NYSE:GES) has also had to discount heavily to sell down high levels of inventory.

Higher than average levels of inventory at Guess?, Inc. (NYSE:GES) during Q2 2012 through to Q4 2012 resulted in discounting and lower EBITDA margins for the company.

However, like Abercrombie & Fitch Co. (NYSE:ANF) it would appear that Guess? has managed to control its inventory and improve margins during the first quarter of this year.

Meanwhile, Urban Outfitters, Inc. (NASDAQ:URBN) has managed to maintain its margins even with high levels of inventory during the last quarter of 2012 and first quarter of 2013.

However, the company was forced to discount it’s higher than average level of inventory heavily back in Q4 2011, which resulted in the company’s EBITDA margin falling 400 bps between Q4 2011 and Q1 2012.

So, what about future trends?

Although Abercrombie & Fitch Co. (NYSE:ANF) may have got last year’s inventory issues under control, the company has been subject to a lot of negative press in these last few months. The company has been the subject of boycotts and internet campaigns trying to get customers to walk away after an interview with CEO Mike Jeffries, given back in 2006 re-surfaced.

I won’t repeat the whole interview here, but the in a quick summary, Jeffries suggests that his brand is tailored to only attractive people and he does not what overweight customers – (of course a comment like this would cause trouble but why have people only started paying attention now, 7 years after the interview was given?)

The impact of this negative publicity is yet unknown, although slower sales for the company could once again lead to higher levels of inventory and discounting throughout the rest of the year, which would push down margins and profits — just after the company has got back up on its feet after 2012.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!