Abercrombie & Fitch Co. on Tuesday reported flat year-over-year third quarter net sales of $863.5 million. By brand in the period: Hollister net sales were flat at $514.8 million and namesake Abercrombie net sales rose 1% to $348.7 million, according to a company press release.
Comparable sales were also "approximately flat" on top of last year's 3% rise. Hollister comps dropped 2% as Abercrombie comps rose 3%, although both brands achieved positive comps in the U.S., the company said.
The gross profit rate declined 120 basis points year over year to 60.1%, with the strong dollar driving 40 basis points of the decline. Net income attributable to Abercrombie & Fitch Co. reached $6.5 million and 0.8% of sales.
Abercrombie & Fitch Co. is gliding nicely at home, but turmoil overseas and bad weather helped drive international net sales down 6% to $279.9 million and international comps down 8%.
"Brexit, Hong Kong, several protests throughout Europe" hurt traffic and sales, CEO Fran Horowitz told analysts, according to a transcript from Motley Fool.
But those disappointments, and the fact that the company missed expectations for comps and profit, don't detract from the evidence that, overall, its comeback strategy is working, according to several analysts. The company has improved its apparel assortment at namesake Abercrombie & Fitch, and continues the process of updating key stores while shuttering underperforming ones.
In the quarter, the company revamped 34 locations, including 19 Hollisters, six Abercrombie and nine kids, bringing its year-to-date total to 70, Horowitz said, adding it's on track to end the year "with gross square footage down mid-single digits."
"Our goal and our remodels for A&F is to reduce our square footage anywhere from 30% to 50%. So it's a bit of a different journey than Hollister," she said, noting that, while most Hollister stores are already "appropriately sized and we had to just redo them," the changes at Abercrombie include shrinking square footage, which involves negotiations with landlords. The company is taking advantage of one lease expiration on Fifth Avenue in New York and relocating its Abercrombie & Fitch flagship there to its Hollister space, "just a few blocks downtown," she said.
The rationalization of the company's brick-and-mortar fleet is appreciated by analysts, but other progress is also in play. "[Abercrombie & Fitch Co.] is uniquely positioned among peers to capitalize on changing market trends as positive inflections materialize, due to their superior connection with the customer, product mix, and full service omnichannel at the bleeding edge of retail connectivity," Wedbush analyst Jen Redding said in emailed comments. "Into the Holiday, we see momentum picking up."