Earnings: Bourbon is in, apparel is out

Pisani: Bourbon in, apparel out
Pisani: Bourbon in, apparel out   

Bourbon is in, and apparel is out. That's the story if you look at the earnings picture today.

Abecrombie & Fitch cannot catch a break. Third-quarter earnings were about in line with expectations, but EPS of 42 cents is poor in comparison to last year's 52 cents. Traffic was weak, and with about 30 percent of sales coming from outside the United States, including Europe, is it any wonder?

Here's an understatement: Abercrombie & Fitch expects conditions to remain "difficult." Difficult? I would call lowering full-year guidance to $1.50 to $1.65 from prior guidance of $2.15 to $2.35 more than "difficult." I call it "lousy."

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We all know merchandise is not the hot item. Accessories and electronics are what's selling, but this goes beyond that. The merchandise is just not connecting with consumers. You can see that in the earnings and the comparable store sales declines.

It's enough to make you take up drinking. Speaking of drinking...

Brown-Forman, a category much beloved by traders — bourbon — reported slightly disappointing numbers, but not so much because consumption is declining, but largely because of foreign exchange issues.

Brown-Forman is a leader in its category. It is in a business — brown spirits, mostly bourbon, account for about 75 percent of the company — that is growing fast among young people. It sells top-shelf stuff that goes for a premium. We're talking legendary names such as Jack Daniel's, Woodford Reserve, Old Forester, but also vodka (Finlandia), tequila (Herradura), and liqueurs (Chambord, Southern Comfort), as well as wine (Korbel, Sonoma-Cutrer).

Second-quarter earnings were on the light side. So, what happened? The company gets about a third of its sales in Europe and another 12 percent from Australia. That can be a problem, and it certainly was in this case; the company cited a "significant impact" from adverse foreign exchange.

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Brown-Forman lowered full-year guidance slightly to $3.15 to $3.35 from prior guidance of $3.25 to $3.45.

But the company said that "underlying trends remain favorable." Underlying sales were up 7 percent, comparable store sales are growing and gross margins are expanding.

It's still a growth story.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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