Marc Lichtenfeld
Inventories were up, though they were in line with expectations. That begs the question, how did the company boost margin and keep inventory levels at the projected pace when same-store sales were negative?
On the company's conference call, Jeffries glossed over the subject when asked, stating, "We do a very good job balancing inventories with demand." Clearly, they must. HSBC analyst Nora Kahn wrote in her earnings-recap report, "Quarters such as the one just past highlight the importance of square-footage-driven sales growth, with [companies] dependent solely on comps often forced to act more promotionally, or face negative sales." While her statement is accurate, I want to see positive comps as proof that a brand is resonating with customers. Abercrombie has posted same-store sales growth in just two of the past five quarters -- although to be fair, the company reported monster, double-digit numbers in 2005 that make comparisons tough. Nevertheless, I want stores to continue to excite and entice customers no matter what they did the year before or year before that. Abercrombie expects comps to be flat in the second quarter. The company had the most trouble in terms of same-store sales with its Hollister brand, a trendy teen chain with California-inspired apparel. "I love what's going on with Hollister," declared CEO Jeffries on the conference call. He gives love a bad name. Same-store sales at Hollister tumbled 5%, making the chain the worst performer among the company's brands.
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