Abercrombie, Gap forecasts signal tough holiday quarter for retailers

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Bleak fourth-quarter sales forecast from Abercrombie & Fitch Co (ANF.N) and Gap Inc (GPS.N) raised fresh concerns that apparel retailers were in for another tough holiday season as fewer shoppers visit malls and continue to spend less on clothes.

Shares of Abercrombie, which reported a much steeper-than- expected 6 percent decline in same-store sales, fell as much as 14.35 percent on Friday.

Gap's shares fell 15.14 percent. Gap on Thursday said same-store sales fell 3 percent.

Both companies have been closing stores and investing their online businesses as they try to cope with rapidly changing consumer tastes and stiff competition from Amazon.com Inc (AMZN.O) and fast-fashion retailers such as H&M (HMb.ST) and Inditex's (ITX.MC) Zara.

But their efforts to turnaround their businesses have shown little traction.

See the struggling department stores of 2016:

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TORONTO, ONTARIO, CANADA - 2016/03/08: Sears store entrance, is an American chain of department stores. Known for selling high quality clothing article from shoes to shirts. (Photo by Roberto Machado Noa/LightRocket via Getty Images)
Macy's Inc. signage is displayed at a department store in New York, U.S., on Monday, Feb. 22, 2016. Macy's Inc., the largest U.S. department-store company, is scheduled to report fourth-quarter 2015 earnings before the opening of U.S. financial markets on February 23. Photographer: Michael Nagle/Bloomberg via Getty Images
J.C. Penney Co. signage is displayed outside of a store at the Gateway Shopping Center in the Brooklyn borough of New York, U.S., on Saturday, Aug. 8, 2015. J.C. Penney Co. is scheduled to release earnings figures on Aug. 14. Photographer: Michael Nagle/Bloomberg via Getty Images
UNITED STATES - JUNE 09: Customers enter the Dillards department store at Parkdale Mall, in Beaumont, Texas, Wednesday morning, June 9, 2004. A judge declared a mistrial in a lawsuit brought against Dillard's Inc. by 17 black shoppers in Texas who claimed that security guards at the department store chain harassed them because of their race. (Photo by Scott Eslinger/Bloomberg via Getty Images)
MIAMI, FL - APRIL 19: A Nordstrom sign is seen outside a store on April 19, 2016 in Miami, Florida. Nordstrom on Monday said in a cost-cutting measure they are expecting to lay off 350 to 400 people. (Photo by Joe Raedle/Getty Images)
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Abercrombie's sales have fallen for 15 straight quarters, while those of Gap have declined for seven.

To be sure, the holiday season is expected to be challenging for all retailers including department store operators such as Macy's Inc (M.N) and Kohl's Corp (KSS.N).

"It is tough overall, and it is tougher for teen," Wolfe Research analyst Adrienne Yih told Reuters.

"It has been unusually warm so far, and everybody is selling jackets and cold weather gear and it will be difficult to sell them when it is 65 degrees," she said.

Teen retailers, which are already struggling to sell their merchandise, will now have to deal with excess inventory as they add new items for the holiday shopping season.

This would mean more discounts and promotions at retailers, and a further hit to margins, analysts said.

Inventories at the end of the third quarter at both Abercrombie and Gap were, however, lower than in the year-ago period.

Abercrombie, once popular for its logo-emblazoned polo shirts, sweatpants and sweat shirts, said it expected sales to be challenging in the fourth quarter, but "modestly improved" from the third quarter as it expects its Hollister brand and sweaters for women to continue to do well during the holidays.

The company's net sales fell 6.5 percent to $821.73 million in the third quarter ended Oct. 29. Analysts on average had expected $830.6 million, according to Thomson Reuters I/B/E/S.

Abercrombie said it would close its A&F flagship store in Seoul in January and would take a $16 million charge in the fourth quarter from lease termination of its flagship store in Hong Kong.

Net income attributable to the company fell to $7.88 million, or 12 cents per share, in the quarter, from $41.89 million, or 60 cents per share, a year earlier.

Excluding certain items, Abercrombie earned 2 cents per share, well below analysts' average estimate of 21 cents.

(Reporting by Gayathree Ganesan, additional reporting by Jessica Kuruthukulangara and Sruthi Ramakrishnan in Bengaluru; Editing by Martina D'Couto and Sayantani Ghosh)

See the brands these young shoppers are flocking to instead:

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Top retail brands for millennials

24. Levi's 

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23. Calvin Klein

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22. Ralph Lauren

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21. Michael Kors

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20. Walmart

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19. Macy's

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18. Vans

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17. Old Navy

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16. Converse

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15. Adidas

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14. Gap

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13. Under Armour

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12. Bath & Body Works

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11. Nordstrom

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10. Target

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9. Urban Outfitters

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8. J.Crew

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7. H&M

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6. Sephora

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5. Lululemon

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4. Zara

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3. Forever 21

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2. Victoria's Secret

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1. Nike

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