A& F Reports Profit Decline But Positioned for Growth

● CEO Fran Horowitz said the company successfully managed inventories and expenses through significant inflation and global macroeconomic disruption.

Abercrombie & Fitch Co. ended a challenging 2022 with some momentum entering 2023 and some intriguing lessons learned.

“We have learned there is no normal and no new normal in this business,” chief executive officer Fran Horowitz told WWD, after being asked to reflect on the past year.

Horowitz said that between war in the Ukraine, COVID-19, inflation and working to improve Hollister’s performance, Horowitz said, “the business has been complex and complicated…. The bottom line is that there are always macro issues that have been a little more complex recently. We have to stay focused on what we can control.”

Horowitz was interviewed right after the company reported another strong performance at the Abercrombie brand, some improvements at Hollister, andd decline in fourth-quarters profits amid overall sales gains.

For the quarter ended Jan. 28, the net dropped to $40.69 million from $67.83 million, while sales were up 3 percent to $1.2 billion from $1.16 billion in the year-ago quarter, and up 5 percent on a constant currency basis.

Hollister sales were $639.4 million in the quarter, compared to $668.8 million in the year-ago period. Abercrombie’s sales rose to $560.4 million from $492.6 million in the year-ago quarter.

“We are pleased with how we have started the first quarter of this year,” Horowitz said. “Abercrombie’s sales are robust and Hollister made some nice movement in the back half,” owing to management and assortment changes, and the pursuit of of some new trends, particularly with cargo pants, knit bottoms and utility bottoms, Horowitz said. Hollister dresses are also performing as the Hollister customer “chooses to get dressed up more,” Horowitz noted. With lowered inventories, Hollister can be much more agile in reacting to trends and chasing goods, she said.

For the Abercrombie brand, 2022 was its best year ever in pants, punctuated by the introduction of Abercrombie’s “Sloane” pant, a high-rise, wide-leg trouser that comes in different fabrics.

The chief executive officer, while taking a “cautiously optimistic” view on consumer demand in 2023 and is hopeful that declining inflationary prices on freight and cotton costs, as well as further fixes at Hollister will boost the bottom line going forward.

In her official statement issued earlier Wednesday, Horowitz said, “Results were driven by continued, strong momentum in the Abercrombie & Fitch brand and sequential improvement in Hollister as we continue to stabilize the brand’s performance.

“In a year with significant inflation and global macroeconomic disruption,

“While we expect to see net product cost benefits in 2023, we will continue to tightly manage our expenses, inventory and cash flow to properly balance investing for the long term while improving profitability.”

Fran Horowitz, Abercrombie & Fitch Co.

our teams leveraged our agile operating model to redirect expense and inventory investments. These efforts helped drive sequential sales improvement in the last two quarters, while progressing on key growth initiatives across digital, technology and stores.

For 2020, total net sales were $3.7 billion, approximately flat to 2021 on a reported basis and up 2 percent on a constant currency basis. Digital sales represented 44 percent of the total and there was growth in AUR [average unit retail], and the net store count.

Inventory was down 4 percent last year, and reported and adjusted operating margins were consistent with 2019 prepandemic levels despite approximately $300 million of product cost inflation since that time.

“Our Abercrombie & Fitch brand continues to be a leader in the industry, and multiple actions we have taken in the Hollister brand are resulting in sequential net sales trend improvement,” Horowitz said. “We are pleased with our inventory levels and each of our brands is in a position to chase,” strong selling fashion trends.

“While we expect to see net product cost benefits in 2023, we will continue to tightly manage our expenses, inventory and cash flow to properly balance investing for the long-term while improving profitability.” For 2023, the company expects:

● Net sales growth in the range of 1 to 3 percent

● Abercrombie will continue to outperform Hollister and the U. S. will continue to outperform International.

● Growth to be weighted to the second half of the year, driven primarily by the inclusion of a 53rd week for reporting purposes, along with net store expansion. The 53rd week is estimated to add about $45 million to total net sales in 2023.

● First-quarter net sales to be around flat, at $813 million.