What Abercrombie & Fitch Co. Looks Forward to in 2023
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At Abercrombie & Fitch Co., there’s been some heady brick-and-mortar store growth, and more is expected in 2023.
“2022 was our first year for net openings in a decade,” Fran Horowitz, chief executive officer of Abercrombie & Fitch Co., told WWD, citing the plans for 18 A&F, 24 Hollister, 15 Gilly Hicks and three Abercrombie Kids openings, and about 30 store closings.
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Horowitz, along with Scott Lipesky, executive vice president and chief financial officer, on Tuesday outlined to WWD some of what A&F Co. looks forward to in 2023, right after the company reported third-quarter top and bottom declines that beat expectations, and upped projections for 2022 overall. And as a result, the stock price soared 20 percent, or $3.69, to $22.32 around midday Tuesday.
Looking ahead, the executives said:
Store growth will continue into next year, though the agenda won’t be quite as aggressive as this year in terms of units opened.
There’s flexibility in negotiations for landlords, with more than 200 leases coming due in 2023.
Shipping and cotton costs are shrinking, expected to help the bottom line next year.
Inventories will be flat by the end of the fourth quarter, better positioning the company to meet the expected level of demand in the new year.
Merchants will “lean” into bestselling categories.
For the quarter ended Oct. 29, A&F had a net loss of $2.2 million, or 4 cents a share, versus net income of $47.2 million, or 77 cents a share, in the year-ago quarter. Adjusted net income of $0.01 a share beat the expected $0.15 loss.
Net sales in the third quarter dropped 3 percent to $880.1 million from $905.16 million in the year-ago period. Sales were flat on a constant currency basis. Wall Street expected around $830 million in sales.
The Abercrombie division reported a 10 percent gain in sales to $422.3 million, versus $382.85 million in the year-ago period.
Hollister reported a 12 percent decline in sales to $457.75 million from $522.31 million in the year-ago period. Executives blamed inflation for having an inordinate impact on Hollister’s teen clientele.
For all of 2022, A&F now expects net sales to be down in the range of 2 percent to 3 percent from $3.7 billion in 2021. This compares to the previous outlook of down mid-single digits. The outlook includes an estimated adverse impact of about 250 basis points from foreign currency, up from an estimated 200 basis points last quarter.
Operating margin for 2022 is seen in the range of 2 percent to 3 percent, compared to the previous outlook of 1 percent to 3 percent.
A&F Co.’s return to net store openings is motivated by having new real estate opportunities; creating smaller, more productive store formats, and seeing consumers return to brick-and-mortar stores with greater frequency after staying cooped up at home during the pandemic and primarily shopping online.
The company’s new store concept has elevated fixtures and furnishings, updated fitting rooms with variable lighting and presentations focused on styling outfits and key categories.
“Our new Abercrombie stores are delivering 60 percent higher sales per square foot compared to the average Abercrombie adult store,” Horowitz said during a conference call with retail analysts.
“For Hollister, we are excited to start rolling out our evolved store concept this quarter,” she continued. “The new format creates an optimistic and welcoming environment that is omni-focused and complements our digital shopping experience. The open concept interior is designed to be agile and adaptable, allowing for merchandising flexibility. Across all brands, we remain disciplined in our real estate approach with the new stores checking each acquired box: the right size, the right location and the right economics.”
According to Lipesky, the rollout often involves returning to certain malls A&F Co. vacated. For example, the company returned to Roosevelt Field, a huge regional mall in Garden City, New York, with four stores, after having pulled out of the property years before.
On the merchandising front, Horowitz spoke of continuing to lean into cargo pants, woven tops and dress up styles at Hollister to improve business there. At Abercrombie, jeans, dresses and pants have been strong and will continue to be a focus heading into 2023, Horowitz told WWD.
She expects shopping to further “normalize” to pre-pandemic patterns with the kind of sales spikes historically seen on major shopping days like Black Friday and Cyber Monday, followed by a lull in the retail business until a week or two before Christmas. Last year saw an extended holiday season marked by flattish trends in business due to the rash of early price promotions, and fears of stockouts due to shipping bottlenecks.
The executives cited declining shipping and cotton costs, with the former aiding the bottom line through 2023; the latter, during the second half of 2023.
In another change, Horowitz said, “We have shifted ownership of Hollister marketing to Carey Krug, who has been our head of Abercrombie marketing for the past four years where she has built a great team and is instrumental in driving the amazing A&F turnaround. Carey has moved into a new role as chief marketing officer and is now responsible for marketing strategy and creative across all brands.”
Hollister could also get a lift from the Share2Pay app, introduced last quarter, enabling young shoppers to share their digital shopping bags with whomever pays their bills, eliminating a barrier to conversions, particularly among Hollister’s teen clientele.
“Looking to 2023, we’re closely monitoring consumer demand,” Lipesky told retail analysts during a conference call. “We remain cautiously optimistic that we will see significant relief on product costs and some stabilization off inflation across other key expense categories.”
“We also made progress on multi-year technology modernization efforts in areas like merchandising and data, [which] will enable us to be smarter and faster in the future,” Horowitz added.
“While our teams are working to deliver a great holiday, we opt to remain laser focused on the long term. As we move through [the fourth quarter] and into 2023 we expect to continue to leverage our strong balance sheet to fund multiyear strategic investments necessary to execute our Always Forward Plan,” she said, which calls for focused growth across brands, “revolutionizing” the digital business and financial discipline.
The company also announced that Terry Burman will step down as chairperson of the board at the conclusion of the company’s fiscal year ending Jan. 28, and will at that time be succeeded by board member Nigel Travis.
“I’m encouraged by the trajectory of our business, and I’m confident the steps we’ve taken throughout the year will put us in a position to win in [the fourth quarter] and beyond,” Horowitz said. “Across men’s and women’s, we are well positioned for holiday and are energized about the emerging spring trends we will deliver in early 2023.”
She said she is looking forward to visiting malls on Black Friday in the Columbus, Ohio. area, where A&F is based, and seeing “all the consumer energy this weekend.”
“We were pleased to see year-over-year sales trends improve across brands in light of the global macroeconomic environment,” Horowitz said in her prepared statement. “While net sales were down 3 percent as compared to last year on a reported basis, net sales were flat on a constant currency basis. Results were driven by Abercrombie brands where we delivered the highest [third-quarter] net sales since 2014 and the tenth consecutive quarter of average unit retail growth.
“We are cautiously optimistic as the holiday season kicks into high gear,” Horowitz added. “While the environment remains dynamic, we are focused on what we can control. We have strategically adjusted our inventory receipts for holiday and early 2023, and unlike last year, we have the inventory on hand to fulfill holiday demand in the peak Black Friday to Christmas period. Additionally, we have reduced controllable spend where appropriate. At the same time, we are leveraging our strong financial position to advance the long-term, strategic investments necessary to achieve our 2025 Always Forward Plan.”
