Abercrombie & Fitch might have been cool and sexy 10 years ago, but today it's struggling to stay in style.
The teen apparel maker known for its racy ads continues to bleed sales, especially at its struggling Hollister brand. While Abercrombie(ANF) did turn a profit in the second quarter, that was fueled largely by the fact it's shutting down stores left and right to cut costs.
"The problem is they are still in the midst of a product transition, and the U.S. retail environment is very promotional," said Betty Chen, who covers A&F at Mizuho Securities.
The A&F logo has gone so out of fashion in North America that the company plans to phase out sweatpants, t-shirts and other merchandise that prominently feature it.
It's not just A&F hoodies and polo shirts that are on sale. A&F shares tumbled 6% on Thursday as the retailer failed to meet the lofty expectations investors had that drove a rally in the stock earlier this year.
Deep discounts: Like many retailers, A&F has been forced to offer flashy sales to attract shoppers.
Buckingham Research analyst Jennifer Davis told clients in a research note that recent store checks indicate A&F and Hollister sales are "on-trend," but "increased promotional activity was needed to drive traffic and sales."
That helps explain why A&F's gross margins, a key level of profitability, continue to shrink.
Looking for a bright spot? A&F did say it's witnessed "modest improvement" since Back-to-School sales began. The question is how deep the discounts needed to be to drive that improvement.