👖 Abercrombie is Fitch again

Wednesday, November 23, 2022 by Robinhood Snacks |
The old Fitch (Justin Sullivan/Getty Images)

The old Fitch (Justin Sullivan/Getty Images)

The old Fitch (Justin Sullivan/Getty Images)

The old Fitch (Justin Sullivan/Getty Images)

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Hey Snackers,

Thanksgiving is tomorrow and people still have no idea what to call their in-laws. Mom and Dad? Mr. and Mrs.? First name only? Hey, you — pass the gravy? When in doubt, just ask.

Stocks jumped yesterday after Fed officials suggested they might reduce the size of future rate hikes. Crypto inched up as FTX's first bankruptcy hearing kicked off in a Delaware court.

🦃 Turkey Day P.S. US stock markets are closed tomorrow, so we’ll be back in your inbox on Monday. We’re grateful to have you Snacking with us.

Model

Stop trying to make Fitch happen… It’s already happening. Abercrombie & Fitch was long known for overpowering cologne scents, shirtless mall models, and a dubious corporate culture. In the early 2000s, it was the go-to “cool brand” for tweens everywhere. Then Abercrombie logos became very uncool and it fell off the map. After a major rebrand focused on inclusivity, Abercrombie’s back with a denim-twinged vengeance:

  • Abercrombie shares surged 20% yesterday after it reported a surprise quarterly profit and beat sales expectations as demand for office jeans and date dresses rebounded.
  • That’s so Fitch: While Abercrombie’s global sales ticked down, US sales were up from last year and its namesake brand saw 10% global growth.
  • Cali casual < East Coast chic: Hollister makes up more than half of Abercrombie’s total sales, but revenue for the casual sister brand fell 12%.

Pre-Black Friday flex… Abercrombie isn’t the only retailer wowing investors with its preholiday quarter. American Eagle stock soared 17% yesterday after the Aerie-owner beat quarterly profit estimates while toning down its inventory levels (think: higher markdowns). AE’s inventory was up just 8% from last year, compared to 36% in the previous quarter. While sales and profits at AE and Abercrombie fell, right-sizing inventory helped them exceed expectations.

THE TAKEAWAY

Black Friday is an opportunity… for retailers to get their inventories right. First, the problem was too little merchandise as pandemic supply-chain snags collided with rebounding demand. Then it was too much merch as inventories recovered while demand sagged (picture: piles of unsold summer dresses in December). AE expects this holiday season to be “highly promotional,” which reduces profit margins. But clearing out supplies can help retailers stay relevant with shoppers — and reduce profit-draining overstock long term.

Gobble

Giving thanks with Uncle Bob Evans… Thanksgiving traditions are being tested this year with high food prices bumping the cost of a home-cooked feast by 20%. It's more than just pricey potatoes: according to a Wells Fargo analysis, when you factor in cooking and cleaning time, dining out on Thanksgiving might be a better deal than hosting. Inflation-weary shoppers are taking note, even if they don't want to make a resto reservation:

  • A home-delivered meal: 45% of surveyed consumers plan to order in at least some of their Thanksgiving eats (think: less family recipe apple pie, more Applebee's).
  • Green bean coupons: Chains like Chipotle, Bob Evans, Ruth's Chris Steak House, and KFC are pushing Thanksgiving promos to lure shoppers on the side-dish sidelines.

A night on the town is a treat… but a night on the couch is no steal, either. While dining out is typically still pricier than eating in, inflation hasn't struck evenly across the cutting board. The cost of eating out has jumped less than 9% from last year, but the cost of groceries is up more than 12%. In other words, the relative value of ordering turkey takeout this Thanksgiving (versus buying a raw bird) has increased.

THE TAKEAWAY

Versatility is a secret sauce… Restaurants are well served for success this holiday season because they have scale and speed. Big chains like Yum Brands' KFC can lock in supply deals in advance, helping them weather inflation's storm. Meanwhile, mom-and-pop joints can more quickly shift ingredients and menu prices as costs dictate. With food prices expected to continue rising next year, restos will need to lean on flexibility.

What else we’re Snackin’

  • Slump: What zooms in must zoom out: Zoom shares fell after the remote-work darling reported its slowest quarterly growth and lowered its annual sales forecast. Its stock is down 90% from its pandemic peak.
  • E-Za: Your next pizza may be more sustainable: Domino’s plans to roll out 800+ electric GM pizza-delivery cars in the coming months, after struggling to find delivery drivers in a tight used-car market.
  • Vacancy: The home-sales slump is spreading from individuals to institutions: investor home-buying fell 30% last quarter, a sharp drop from last year when buyers like JPMorgan scooped up a record number of homes.
  • Cloudy: Sustainability is data-intensive: just ask Duke Energy, which tapped Amazon’s AWS cloud to forecast energy demand. Duke’s spending $75B on electric-grid updates and aims to go carbon-neutral by 2050.
  • Fans: Make way for merch: yesterday, sports-commerce giant Fanatics and Nike signed a deal to sell merch for Japan’s Yomiuri Giants baseball team. Fanatics now serves 100M fans in 57 countries.

Snack Fact of the Day

The Pakistani city of Sialkot produces about 70% of the world’s soccer balls — including the official ball of the 2022 World Cup

Wednesday

  • Earnings expected from: Deere & Co.

Authors of this Snacks own: shares of Amazon, GM, and Yum Brands

ID: 2607949