Does Abercrombie Have a Turnaround Strategy?

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Nov. 6 (Bloomberg) -- Joseph Gromek, former president & CEO at Warnaco Group, discusses the drop in sales at Abercrombie & Fitch, how it can rebound and the troubles faced by teen retailers. He speaks on Bloomberg Television’s “Market Makers.”

That we are beginning to share.

Is it teen spending more has probably lost the magic?

I think it is teen spending.

Abercrombie is a huge company.

They have many brands.

Abercrombie & fitch, abercrombie for kids, hollister.

It is a very powerful company.

What they have right now, based on the falloff on sales is a huge inventory of problem.

That is what is driving profitability down.

If they are missing 50% of topline sales, that is a huge number.

They are facing -- they are missing 15% of topline sales.

That is a huge number.

When you look at j.crew, h&m, they have a broader audience.

You not going to see an adult walk into abercrombie and fitch.

Is it wise to only cater to the young saw -- the young shoppers question mark -- the young shoppers?

I think where they focus in the past, that is the sweet spot.

That is where kids and young adults spend their money.

They have been through this before.

They got hit really hard in 2008. my money is on them longer-term.

They're going to have to bring in your products to move.

Do they need to get somebody new on the design team?

Do they need to refresh?

How do you figure out what they want?

I think mike jeffries is a merchant.

He is doing this for a long time.

He builds brand from no revenue to $4.5 billion.

He will surround himself with the right people.

He is closing the gilly hicks stores.

Remember in 2009 he call -- you close rule -- he close rule.

It didn't work.

He is willing to take the pain when he asked to.

If it means new design talent, they are smart merchants fear will be looking for everything.

Julie has been following the analyst -- i have been trying to keep an eye on it out of the corner of my eye.

They said they are going to prioritize direct to consumer sales.

At the same time, they say they're going to increase present an outlet centers and they're going to redesign their u.s. storefront and they're going to ask and more aggressively in japan -- they are going to expand more aggressively in japan.

It sound like they're going to tread water for a while and see where fashion goes and find new fashion momentum.

Where does that leave the stock though?

Piper jaffray had it staying flat.

They had a bye on it as i recall.

This company is still losing a good deal of cash flow, operating income.

It is a bottom point.

I should mention, the company has emphasized that it is going to keep generating that catch and retrain a cash to shareholders.

That is something that can provide floor interest.

This is not a jcpenney situation.

They have no debt.

They're generating cash flow.

They're still going to have operating earnings.

Optimistically then, how long does it take to turn around?

Fourth quarter they purchased the inventory.

That is going to be problematic for them.

They have accounted for that in their forecast.

Q1, they're going to play their inventories back.

They're not going to be planning for flat, comparable stores.

They will be more efficient on inventory.

They will not have to liquidate that stock.

Profit margins will accelerate.

Would you characterize it as a turnaround?

Do they need to get more strategic?

I think they're very strategic.

I think they're dealing with current events right now.

It will get their arms around it over the next nine months and they will bounce back very quickly.

It sound like you don't think mike jeffries is in any trouble.

There are questions that came up about who should and should not be shopping in the stores and now the sales down sturm -- the sales downturn.

He is one of the greatest merchants in the united states.

Should we think about his name as a possible replay men as -- replacement at jcpenney?

Is doing what he wants to do.

There's not another job he would be interested in doing other than running abercrombie.

Proxy season is five months away.

Mike jeffries made more than a million bucks last year.

What's in the board do this time around?

-- what should the board do this time around?

I think he is under contract and i think his bonus will take a big hit.

I cannot imagine he hit the threshold in terms for goals for the business area.

He made 48 million in the year before that -- and the year before that he made something bigger than that.

It is not about the one-year probably lost the magic?

I think it is teen spending.

Abercrombie is a huge company.

They have many brands.

Abercrombie & fitch, abercrombie for kids, hollister.

It is a very powerful company.

What they have right now, based on the falloff on sales is a huge inventory of problem.

That is what is driving profitability down.

If they are missing 50% of topline sales, that is a huge number.

They are facing -- they are missing 15% of topline sales.

That is a huge number.

When you look at j.crew, h&m, they have a broader audience.

You not going to see an adult walk into abercrombie and fitch.

Is it wise to only cater to the young saw -- the young shoppers question mark -- the young shoppers?

I think where they focus in the past, that is the sweet spot.

That is where kids and young adults spend their money.

They have been through this before.

They got hit really hard in 2008. my money is on them longer-term.

They're going to have to bring in your products to move.

Do they need to get somebody new on the design team?

Do they need to refresh?

How do you figure out what they want?

I think mike jeffries is a merchant.

He is doing this for a long time.

He builds brand from no revenue to $4.5 billion.

He will surround himself with the right people.

He is closing the gilly hicks stores.

Remember in 2009 he call -- you close rule -- he close rule.

It didn't work.

He is willing to take the pain when he asked to.

If it means new design talent, they are smart merchants fear will be looking for everything.

Julie has been following the analyst -- i have been trying to keep an eye on it out of the corner of my eye.

They said they are going to prioritize direct to consumer sales.

At the same time, they say they're going to increase present an outlet centers and they're going to redesign their u.s. storefront and they're going to ask and more aggressively in japan -- they are going to expand more aggressively in japan.

It sound like they're going to tread water for a while and see where fashion goes and find new fashion momentum.

Where does that leave the stock though?

Piper jaffray had it staying flat.

They had a bye on it as i recall.

This company is still losing a good deal of cash flow, operating income.

It is a bottom point.

I should mention, the company has emphasized that it is going to keep generating that catch and retrain a cash to shareholders.

That is something that can provide floor interest.

This is not a jcpenney situation.

They have no debt.

They're generating cash flow.

They're still going to have operating earnings.

Optimistically then, how long does it take to turn around?

Fourth quarter they purchased the inventory.

That is going to be problematic for them.

They have accounted for that in their forecast.

Q1, they're going to play their inventories back.

They're not going to be planning for flat, comparable stores.

They will be more efficient on inventory.

They will not have to liquidate that stock.

Profit margins will accelerate.

Would you characterize it as a turnaround?

Do they need to get more strategic?

I think they're very strategic.

I think they're dealing with current events right now.

It will get their arms around it over the next nine months and they will bounce back very quickly.

It sound like you don't think mike jeffries is in any trouble.

There are questions that came up about who should and should not be shopping in the stores and now the sales down sturm -- the sales downturn.

He is one of the greatest merchants in the united states.

Should we think about his name as a possible replay men as -- replacement at jcpenney?

Is doing what he wants to do.

There's not another job he would be interested in doing other than running abercrombie.

Proxy season is five months away.

Mike jeffries made more than a million bucks last year.

What's in the board do this time around?

-- what should the board do this time around?

I think he is under contract and i think his bonus will take a big hit.

I cannot imagine he hit the threshold in terms for goals for the business area.

He made 48 million in the year before that -- and the year before that he made something bigger than that.

It is not about the one-year salary for mike jeffries.

Is about the future.

-- it is about the future.

This text has been automatically generated. It may not be 100% accurate.

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