For Abercrombie & Fitch, Sales and Inventory Are Moving in the Right Direction
Abercrombie & Fitch Co. seems to be firing on all cylinders.
In a Nutshell: “Abercrombie brands continue to impress and push to new heights marking the highest second quarter sales for the brand since 2011 and the 10th consecutive quarter of sales growth,” Abercrombie & Fitch CEO Fran Horowitz told investors during a conference call on Wednesday.
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For Hollister, “with clean current inventory, we control the promotional calendar and reduced discounts in the second quarter,” she added.
The company ended the quarter with 30 percent less inventory versus the comparable period last year.
At Abercrombie, both men’s and women’s posted double-digit sales growth in the second quarter. “In women’s, we continue to see strength in pants and dresses as our customers look for outfits to get them through their workday to the weekend getaway,” Horowitz said. “On the men’s side, we’ve strengthened knit tops and pants, all versatile, seasonless products to outfit them for their everyday lives.”
Hollister sales were driven by customer response to a more “balanced assortment” that included dresses, non-denim bottom and seasonal tops. The men’s business also saw progress across its tops and non-denim bottoms categories, she said.
Horowitz told investors that the company once focused on jeans and tees has evolved Abercrombie and Hollister into lifestyle brands. While denim remains a key category, “bottoms is much, much bigger than denim is today and we had for the second quarter a very strong bottoms business across brands and across genders,” she added.
Baggier fits and looser denim continues to resonate with male and female shoppers. “The low rise is actually starting to emerge again. So there are still things are happening that are exciting [in denim], but we are really focused on the fact that bottoms are much more than [just] denim today,” Horowitz said.
“One of the best tools that we have is chase and reading and reacting, and that’s what the team has been up to all year,” she said.
In an interview, Horowitz told SJ that operating with lean inventory is a “huge win” for the company.
“The factories around the world do have opportunity from reduced inventories, but additionally they’re just much more efficient,” she said.
The clothing company is keeping a close eye on what happens when the student loan repayment plan goes into effect on Sept. 1. “Whether it’s loans or another challenge, the consumer continues to spend. They just choose where they’re going to spend, and right now they’re choosing our brands so we’ve just got to stay close to our customer to make sure that we’re providing the best experience for them,” Horowitz said.
The retailer expects to open 35 new stores, remodel and right-size 20, and close 30, Scott Lipesky, senior vice president and chief financial officer, told investors, with the Abercrombie seeing more openings, and Hollister shutting more doors. The company last month opened a new Manhattan flagship on Fifth Avenue.
The Abercrombie brand now counts 40-somethings among its customer base of mostly 20-something millennials, Lipesky said.
“We’re trying to reintroduce people to the brand….We’re also introducing new customers to the brand that have never never shopped with us,” he said, pointing out that “TikTok has helped.”
The company doesn’t plan to raise prices this year, although the fall-winter assortment tends to carry higher price points. Fewer promotions should help to push up higher average unit retails, which will help with margins.
Net Sales: For the three months ended July 29, net sales jumped 16.2 percent to $935.3 million from $805.1 million.
By brand, net sales at Abercrombie jumped 25.7 percent to $462.7 million in the quarter, while Hollister sales were up 8.2 percent to $472.6 million. By region, sales in the Americas rose 19.3 percent to $731.4 million, while in EMEA (Europe, Middle East and Africa) were up 4.3 percent to $172 million. Asia Pacific, the company’s smallest market, also saw gains in the quarter as sales rose 18.3 percent to $32 million.
For the six months, net sales were up 9.5 percent to $1.77 billion from $1.62 billion.
Earnings: For the quarter, net income swung to the black at $56.9 million, or $1.10 a diluted share, against a net loss of $16.8 million, or 33 cents, in the same year-ago quarter.
Wall Street was expecting earnings per share of 17 cents on revenue totaling $842.4 million.
For the third quarter, the company expects net sales growth to be up low double-digits versus $880 million in the same year-ago quarter. For Fiscal 2023, net sales were projected at up 10 percent from $3.7 billion in 2022, an increase from the prior forecast of up 2 percent to 4 percent disclosed when the company posted first quarter results on May 24. “The current outlook assumes that Abercrombie brands will continue to outperform Hollister brands,” the company said. The fiscal year includes a 53rd week, along with net store expansion. The 53rd week is estimated to add $45 million to total net sales for the fourth quarter and full year.
For the six months, net income was $73.5 million, or $1.43 a diluted share, against a net loss of $33.3 million, or 65 cents, in the year-ago period.
CEO’s Take: “Our second quarter and first half results show our playbook is working and the customer is choosing our brands,” Horowitz said.
