Abercrombie & Fitch plans to close 60 US stores in 2018

Dive Brief:

Abercrombie & Fitch on Wednesday reported that net sales for the fourth quarter rose 15% to $1.19 billion and that company same-store sales rose 9% year over year. The additional week in fiscal 2017 benefited fourth quarter net sales by about 4% and foreign currency exchange rates boosted them about 3%, according to a company press release.
Direct-to-consumer net sales, which CEO Fran Horowitz-Bonadies on Wednesday called the retailer's "biggest storefront," grew to some 34% of total company net sales, up from about 31% last year, the company also said, and same-store sales rose 18%. By brand, Hollister net sales rose 19% to $709.2 million as same-store sales rose 11%; at the Abercrombie flagship net sales rose 9% to $484 million and same-store sales rose 5%. By geography, net sales rose 13% to $774.6 million in the U.S. and 20% to $418.6 million in international markets.
This year, the company says it plans to close up to 60 U.S. stores through lease expirations and to open 21 full-price stores, including 11 in the U.S. and 10 in international markets. Last year, the company opened nine new stores, (six full-price in the U.S. and one overseas plus two outlet stores), and closed 39 stores, primarily in the U.S.

Dive Insight:

Abercrombie's fourth quarter same-store sales rise was the first positive comp in five years, Horowitz-Bonadies said Wednesday. "We saw improvement from last quarter with positive comp across geographies, channels and genders, driven by strength in core categories," she noted, according to a transcript from Seeking Alpha. In men's, graphic tees, street and outerwear were the standout; in women's, knit was strong, and the bottoms business performed well across genders, she said.

"A&F's strong showing in Q4 is certainly heartening," Mark Cohen, director of retail studies at Columbia University's Graduate School of Business, told Retail Dive in an email, "but only if its signals an upward trend throughout 2018 and not just a case of the rising tide in Q4 in retail floating all boats."

Details of Abercrombie's healthy quarter weren't really the shiny object in the company's report. The retailer got a lot of attention on Wednesday for its store closure plans, but executives kept the focus on store investment. All told, capital expenditures this fiscal year will be about $130 million, and that includes about $85 million for store updates and new stores (with another $45 million for direct-to-consumer and omnichannel investments, IT and other projects, including its loyalty program), CFO Scott Lipesky told analysts. This year, the retailer will open four new stores using the prototype it runs in select areas and will remodel eight others along those lines, he also said.

The company has closed over 400 stores since 2010, and last year the company remodeled 35 Hollister stores and seven new A&F prototype stores, which included 16 downsizings of existing stores. And the company closed 39 stores, fewer than the 60 executives expected going into last year.

All those closures aren't as alarming as many analysts fear and in fact are likely necessary, Cohen said. "I think it is imperative that all large legacy retailers carefully examine their stores' portfolio and adjust accordingly, especially now as customer migration from brick and mortar to e-commerce is running full tilt," he said.

The retailer's physical store strategy is increasingly tied up in its e-commerce strategy, including with returns of online orders, a "large proportion" of which are handed in at stores. "We look at that as an opportunity to engage our customers. And it's… a very important aspect of the way we engage customers," she said. "Gen Y and Gen Z customers have an increasing expectation of being able to engage with the brand on any platform or medium they have at the moment, wherever they are in the world."