Abercrombie & Fitch Posts Another Solid Quarter
The company raised its guidance for the year and expressed confidence heading into the heart of the holiday season.
“I’m really excited
by this weekend. I can’t wait to experience all the energy.”
That’s Fran Horowitz, chief executive officer of Abercrombie & Fitch, expressing enthusiasm for the Black Friday weekend when she’ll be visiting malls and checking out A&F stores and those of competitors, and it’s no wonder considering the serious momentum the specialty retailer has heading deeper into the fourth quarter despite the softening consumer demand other fashion retailers have experienced.
On Tuesday, Abercrombie & Fitch Co. posted solid third-quarter results, beating expectations. For the third quarter ended Oct. 28, the youth specialty retailer reported net income of $96.2 million, or $1.83 per share on a reported basis, compared to net loss per diluted share last year of 4 cents and net income per diluted share of 1 cent on a reported and adjusted non-GAAP basis, respectively.
Net sales reached $1.1 billion, up 20 percent as compared to last year on a reported basis and up 19 percent on a constant currency basis. Total company comparable sales were up 16 percent.
The company’s stock closed up 2.41 percent to $74.03 on Tuesday.
“Our inventories are nice and lean and we are in a position to chase,” Horowitz told WWD, meaning there’s open-to-buy on whatever hot selling items emerge for holiday and the ability to respond quickly. She also said the fourth quarter “is off to an encouraging start” and that A&F is accelerating marketing investments in the fourth quarter, though she described the macro environment as remaining challenging and uncertain.
Among the big takeaways for the third quarter, Horowitz told WWD that the strong business performance was “balanced” across brands, channels and regions, and that after a tough 2022 for Hollister and teen brands generally, “we really focused on the customer. We put together the right assortment for back-toschool and holiday. They still love denim but we expanded Hollister beyond denim” into a much broader bottoms assortment, including cargos and utility styles.
At Hollister, “the guys business is starting to get better, but [it’s] taking a little longer than expected to turn that business,” Horowitz acknowledged. Hollister’s girls business continued to perform.
The Abercrombie brand, Horowitz told WWD, experienced its 11th consecutive quarter of gains, reflecting years of work transforming the brand from a T-shirt and jeans teen business to a Millennial lifestyle brand appealing to wider audience in their 20s to 40, and older.
Among the opportunities for further growth cited by Horowitz: rolling out additional “neighborhood” stores, which she described as smaller and more efficient, about 3,000 square feet in size compared to the average
4,000- to 5,000-square-foot mall store, and more locally merchandised. So far, there are eight to 10 operating, but Horowitz said, “there are many more opportunities across the U.S.” The unit in Manhattan’s Flatiron neighborhood “in just a short period of time is seeing repeat customers,” Horowitz said.
Other opportunities seen: international growth, and furthering the bottom line through an expected continuation of lowering freight costs along with possible lower raw material costs next year, though retailers still experience headwinds there.
In a prepared statement early in the day, Horowitz said, “Our strong third-quarter results, with net sales and operating margin well-exceeding our expectations, speak to the power of our playbook working globally across our brand portfolio. Net sales growth of 20 percent accelerated from the second quarter and was once again led by Abercrombie brands with exceptional growth of 30 percent. At Hollister brands, we had a solid back-to-school season, delivering 11 percent net sales growth for the quarter as our assortment and brand evolution is resonating with our teen customer. With strong product acceptance and tightly controlled inventories across brands, we delivered gross profit rate expansion of
570 basis points to last year in addition to global sales growth. Operationally, we made investments in technology, marketing and our people while delivering strong year-over-year operating leverage resulting in an operating margin of 13.1 percent for the quarter.
“Entering the important holiday season,” Horowitz added, “our fiscal 2023 year-to-date results give us the confidence that we can continue to deliver for our customers and drive profitable growth. As such, we are increasing our full-year outlook for both net sales growth and operating margin.”
For the full year, A&F now expects net sales growth of 12 to 14 percent from $3.7 billion in 2022, compared to the previous outlook of growth of around 10 percent. Also, fiscal 2023 includes a 53rd week for reporting purposes, along with net store expansion. The 53rd week is estimated to add approximately $45 million to total net sales in the fourth quarter and full year of 2023.
Operating margin is now seen around 10 percent compared to the previous outlook in the range of 8 to 9 percent.
The current outlook includes a benefit of around 250 basis points from full year 2022 levels on expected net improvement in freight and raw material costs, and modest operating expense leverage with sales growth expected to more than offset higher expenses.
For the fourth quarter, net sales growth is seen up low-double digits compared to fiscal fourth quarter 2022 level of
$1.2 billion. Included in this outlook is the expected benefit of approximately
375 basis points from the 53rd financial reporting week.
Operating margin is seen in the range of 12 to 14 percent compared to an adjusted operating margin of 7.7 percent in fourth quarter 2022. “We expect the year-overyear improvement to be driven by a higher gross profit rate on lower freight costs and higher AURs,” the company indicated.