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Abercrombie & Fitch Turns to Wholesaling

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In a move to improve brand engagement, Abercrombie & Fitch has decided to venture into wholesaling.

The teen retailer will soon be selling items from its line, with the exception of Hollister products, online with U.K. e-tailer Asos, which markets fashionable youth-oriented brands, this coming holiday season. A&F’s foray into wholesaling was announced by CEO Mike Jeffries in a recent conference call to analysts.

During the call, Jeffries noted that Asos’ success and sustained growth would help A&F increase brand consideration and engagement, and the partnership will offer an attractive margin structure.

A&F’s COO Jonathan Ramsden added during the call that the Hollister brand apparel may eventually be offered through Asos.

Jeffries also addressed the retailer’s better-than-forecast revenues and less than anticipated losses.

But despite the slight improvement over analysts’ expectations, A&F’s quarterly numbers were still not good. For the 13-week period ended May 4, 2014, the retailer posted a net loss of $23.7 million, or $0.32 a diluted share. That loss was triple the retailer’s $7.2 million loss, or $0.09 per share, for the same period last year. Subtracting costs related to restructuring and the closing of A&F’s Gilly Hicks stores, the loss was $0.17 a diluted share, $0.02 shy of the loss forecast by analysts. Sales revenues topped estimates, but fell two percent to $822.4 million, down from last year’s $838.8 million.

Although A&F’s bottom line for the quarter was still subpar, the nominal improvement came in the wake of significant prior losses and a management shakeup last January that split the titles of CEO and chairman in response to pressure from hedge fund Engaged Capital. Arthur Martinez assumed the non-executive chairmanship.

As part of its effort to beef up sales revenue, A&F’s new arrangement with Asos is partially a test, according to Ramsden, to determine if wholesaling could be offered profitably to other retailers.

A&F has also said it plans to open four more stores in China this year, on the heels of better-than-expected sales at its Shanghai flagship store.

The company’s newly-designed Hollister stores saw a double-digit increase in sales since testing began at the locations in January. The new store concept, which features large store front windows, a smaller interior, and a video wall for displaying more in-store content, will be rolled out in 75 to 100 of Hollister’s stores, with the majority going to the firm’s 456 U.S. stores, and a small allocation to Canada.

Other A&F initiatives include the opening of 15 full-price international stores, and eight to ten outlet stores in both the U.S. and foreign locations.

The company has also said it plans to close 60 to 70 of its 840 sites as leases expire. Some 500 A&F leases will be up for renewal within the next two years.

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