Updated from 11:21 a.m. EDTAbercrombie & Fitch ( ANF) finally came to its senses, announcing the closure of its famously flailing Ruehl concept. The teen retailer will shutter all 29 Ruehl stores and related direct-to-consumer operations. It expects the closure to be completed by the end of the fiscal year. Investors applauded the move, sending shares up 5% to $27.03 in afternoon trading. Last month, Abercrombie & Fitch announced a "strategic review" of the concept, which has been weighing down earnings since its inception in August of 2004. Ruehl was originally positioned to be a Greenwich Village-inspired line, targeting the 22 to 35-year-old college graduate. But Richard Jaffe, analyst at Stifel Nicolaus, said in a note on Wednesday that the concept lacked a clear identity and was unable to gain traction with consumers. Ruehl generated a loss of about $58 million during the fiscal year ended Jan. 31, which included a non-cash impairment charge of about $22 million. In the first quarter, same-store sales at Ruehl plunged 34%. The strategic review of Ruehl cost the company about $51 million in non-cash, pre-tax impairment charges in its first quarter of fiscal 2009. In addition, management estimates additional pre-tax charges of approximately $65 million, which it will recognize during the rest of the year. It is believed Ruehl was on track to generate even biggers losses in 2009. "The decision to close Ruehl was based on the environment, despite making strides in the assortment," Roxanne Meyer, analyst at UBS wrote in a note on Wednesday. "This underscores that it may continue to be difficult for Abercrombie & Fitch's other brands given its aspirational pricing and still evolving assortment."
Abercrombie also said it amended its existing credit agreement to $350 million from $450 million, which excludes some of the Ruehl-related charges. "This provides Abercrombie & Fitch with additional cushion, and speaks to the llimited visibility on future performance, even after excluding Ruehl," Meyer wrote. Abercrombie & Fitch should end the year with about $700 million in cash, more than enough to fund liquidation, Jaffe wrote. Analysts breathered a sigh of relief, as they have been calling for the closure of the chain. Jaffe said Ruehl had not only been a financial drag, but also a distraction to Abercrombie & Fitch's better-performing concepts. Aeropostale ( ARO)had already shuttered its money-losing Jimmy'Z chain in February. Next on the chopping block? Hopefully American Eagle Outfitter's ( AEO) contemporary chain Martin + Osa, which has also been a drag on the company's performance -- not to mention overpriced for these trying times.