Will Gap or Abercrombie Report Stronger Retail Sales?
Gap Inc. (NYSE:GPS) is one of many retailers reporting first quarter losses with a 1% decrease in net sales and net comparable store sales down 3%. Its brands — Gap, Banana Republic, and Old Navy — were down 3%, 1%, and 2% respectively, though online sales increased 18% with free shipping and online-only deals. And the future doesn’t necessarily hold better numbers as the relatively affordable retailer raises prices in an attempt to offset the higher operating costs that apparel retailers are feeling across the board.
Beating the trend was Abercrombie & Fitch (NYSE:ANF) reporting a net sales increase of 22% year-over-year, to $837 million, with total comparable store sales up 10%. While increasing cotton costs put a dent in profits for many apparel retailers, Abercrombie benefited from their high prices and unwillingness to resort to discounts during the economic downturn for fear of sullying its reputation as a premium brand. Unlike companies like Saks Inc. (NYSE:SKS) that have customer bases fairly insulated from temporary economic fluctuation, Abercrombie experienced an extreme drop in customer spending during over the last couple years, in part because shoppers sought out deals at lower-priced chains like Old Navy (NYSE:GPS). But as consumer spending picked up in 2010, Abercrombie’s numbers rebounded.
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Other premium brands like Urban Outfitters (NASDAQ:URBN), which reported a net sales increase of 18%, are also bucking the trends as they establish themselves as niche markets (Urban Outfitters is the go-to shop for “hipsters” while Abercrombie is a favorite of the “preps”) whose brands stand out as symbols of quality and a certain lifestyle. Let’s see how these outlets hold up when retail numbers come out tomorrow.