As I just noted in my last post on Tilly’s and expect to note as I get to other retailers, the teen market is sort of lousy right now. People seem a bit perplexed as to why it’s fallen so hard, but I believe it’s as simple as a lack of money and jobs for teens. And I suppose I’d add a lack of product differentiation and very broad market with way too many competitors and retailers.
A & F’s results for the year reflect that and some of their responses are interesting, though consistent with what other retailers are doing. But remember that, unlike many retailers they compete with, they only sell their own brands. Let’s start with the numbers after which it will be easier to explain their reaction to market conditions.
“Our capital allocation philosophy remains to return excess cash to shareholders. To that end, on February 27, we entered into a $150 million accelerated share repurchase agreement pursuant to the existing open share repurchase authorization of 16.3 million shares. The accelerated share repurchase agreement reflects our confidence in our ability to achieve significantly improved performance and create sustainable value for shareholders. We anticipate additional share repurchases over the course of the year, utilizing free cash flow generated from operations in addition to utilizing existing or additional credit facilities.”
Okay so I’m confused. I’m not a shareholder but if I heard that I’d probably ask Mr. Jeffries why he didn’t just pay me a dividend. I know the concept is that reducing the shares outstanding increases the share price, but I don’t think shareholders feel any “excess cash” in their pockets as a result of the share buyback. And I might wonder how many shares had been issued to executives and other employees in the form of options or grants and the extent to which that offset the buy back. I might even wonder why it was that the company couldn’t find anything better to do to with that cash to increase the value of my shares. And I wouldn’t just wonder that for Abercrombie & Fitch, but for a whole bunch of other companies.