Abercrombie & Fitch Co. (A&F), based in Ohio, is under pressure after a controversial 2006 magazine interview with CEO Mike Jeffries surfaced this month. A&F, known for its ads featuring bare-chested models, is now feeling the pinch, and the company’s sales have been declining.
According to A&F’s unaudited consolidated statements, released on May 24, revenue decreased by nearly 9 percent in the first quarter of 2012, to $839 million from $921 million during the same period in 2013. The company also reported a $7 million net loss for the quarter, which was better than the $21 million loss during the same quarter in 2012.
Although A&F’s international sales increased by 10 percent during the quarter, U.S. sales plummeted 17 percent, dragging down the company’s revenue. Sales in the United States make up nearly two-thirds of A&F’s total revenue.
The market reacted to the news by pushing A&F’s stock (NYSE: ANF) down 8 percent, or
$4.35, to $50.02 by the close of trading May 24. A&F shares shed another 0.9 percent, or $1.76, on May 28, despite gains of 0.7 percent for both the S&P 500 and Dow Jones Industrial Average, which closed at a record high.
Despite losing money during the quarter, the company announced a $0.20 dividend per share to be paid on June 18 to shareholders of record on June 3.
Digging Up the CEO’s Blunder
A&F’s CEO, Mike Jeffries, has been in the hot seat recently for a Jan. 4, 2006, interview with online magazine Salon.com. The article stated, “As far as Jeffries is concerned, America’s unattractive, overweight or otherwise undesirable teens can shop elsewhere.”
Jeffries was quoted in the article for having criticized other companies for “trying to target everybody: young, old, fat, skinny.” However, he said, “In every school there are the cool and popular kids, and then there are the not-so-cool kids.” “Candidly, we go after the cool kids. We go after the attractive all-American kid. … A lot of people don’t belong [in our clothes], and they can’t belong. Are we exclusionary? Absolutely.”
The Business Insider website was the first to dig up Jeffries’s blunder early in May. Soon, A&F found itself under attack through social media, with Jeffries issuing an apology on his Facebook page.
Benjamin O’Keefe, of Orlando, Fla., started a petition on the change.org website, asking the company in an emotional letter to change its attitude and also sell clothing for kids that don’t have the figure of a model.
In May, a man going by the pseudonym of Gkarber on YouTube began a crusade via social media to give Abercrombie’s clothes to homeless people. Within days, millions of people watched the video he posted on YouTube May 13, http://www.youtube.com/watch?v=O95DBxnXiSo. Since then, numerous other videos berating A&F have gone up. As of May 29, 7.4 million people have watched this particular video.
Testing Shareholders’ Resolve
How much this mishap has driven recent sales is unclear, but analysts are becoming weary. “The revenue miss is a negative sign to shareholders seeking high growth out of the company,” says a May 24 article on the Wall St. Cheat Sheet website.
The Cheat Sheet article explains why it believes shareholders should sell A&F shares, pointing to the latest earnings per share loss of $0.09, the company’s decreasing revenue and missing analyst expectations, but the article doesn’t provide specifics concerning actual shareholder flight.
A few stock price analysts suggest not buying or selling A&F stock, pointing to the company’s apparent inability to get its act together, its promotional overreach, and poor management of inventory.
According to the MarketWatch website, social sentiment, based on 984 Tweets, was moderately bearish, as of May 28.
Most analyst reports rated the company’s stock a buy in January and have not caught up with the latest earnings release. However, according to the Cheat Sheet, analysts are getting more and more negative on the company’s stock.
Yahoo Finance suggests in its May 24 article title, “Investors Bail on Beleaguered Brand,” and it questions if, despite the resilience of A&F’s stock price over the past month, this earnings report marks a turning point. However, it may still be premature to determine if long-term investors are bailing out by selling the stock.
Catering to a certain group of consumers is one thing, but a CEO offending and excluding nontarget consumers is another thing entirely, especially considering people’s ability to use social media today to make that blunder known to millions of the company’s most sought-after customers. A&F’s brand may be permanently stained because of this, and in the end, the company’s sales could further deteriorate as a result. Only time will tell.