Abercrombie's recovery shows 'positive momentum'
Abercrombie & Fitch on Thursday reported that third quarter net sales rose to $861 million from $859 million in the year-ago quarter, despite impacts from a calendar shift and foreign currency. Direct-to-consumer net sales rose 16% from last year to $243.6 million and made up about 28% of total net sales for the quarter, up from about 24% last year, according to a company press release.
Store comps rose 3%, besting analyst expectations for 1.6% as noted by William Blair analysts. By brand, Hollister comps rose 4% to $515.1 million and flagship Abercombie plus Abercrombie Kids comps rose 1% to $346.1 million. U.S. store comps rose 6% and international comps fell 3%, the company said. Operating income rose to $39.7 million from $22.7 million last year. Excluding certain items, adjusted non-GAAP operating income was $36.7 million, down from $37.3 million last year. Net income rose to $24.8 million from $10.6 million a year ago, the company said.
The retailer also announced it’s eliminating individual brand chief positions. Hollister brand president Kristin Scott has been appointed president of global brands, effective immediately, reporting to CEO Fran Horowitz. Stacia Andersen, brand president of Abercrombie & Fitch and Abercrombie Kids, is leaving, according to another press release.
Investors shrugged off slowing sales at the teen apparel retailer, demonstrating confidence in the retailer’s trajectory by sending shares up Thursday morning by more than 20%.
"This is a healthy print across the board, and shows positive momentum necessary to continue to shake decidedly net-negative sentiment around the stock, much of which is harbored at the A&F brand level," William Blair analyst Dylan Carden said in a note emailed to Retail Dive.
Sales growth has slowed, even dipping at the company’s flagship, leaving Hollister to pick up the slack as it has in most recent quarters. But, that had more to do with comparisons to its year-ago results, plus one less week in the calendar and currency fluctuations, according to GlobalData Retail Managing Director Neil Saunders, who noted the stark increases in the bottom line, along with positive comps at both brands.
Executives on a conference call Thursday morning expressed confidence in the holiday quarter, noting that things were off to a "solid start" already, spurring record sales over the Thanksgiving weekend. The company expects comps to be up in low single digits in the fourth quarter, on top of the 18% increase from a year ago.
The retailer has made improvements in merchandise "fabrication, detailing and styling," Saunders said in comments emailed to Retail Dive, but said the transformation remains a work in progress. "The range — especially at Abercrombie — is now more sophisticated, is more on-trend, and better reflects what modern consumers want," he said. "There is also a cohesiveness to the assortment which stimulates multiple purchases and helps to push up average transaction values."
There’s a four percentage-point increase in the number of Americans considering shopping at Abercrombie and nearly a six percentage-point increase in those considering Hollister, according to GlobalData Retail research. With core shoppers, both brands are enjoying elevated perceptions of quality and design compared to last year, GlobalData also found.
Still, both brands must do more to make shoppers aware of the improvements, he said. And the retailer must shift its focus from the U.S., its biggest market, where growth was most pronounced, and do the same thing abroad, he warned. "Customer dynamics, competitive sets, and perception of the brands are all very different in markets like the U.K. and a degree of localization is needed to ensure that the brands fully resonate with regional consumers," he said. "We believe that management recognizes this and has already taken some steps, such as opening a new-format mall-based store in the U.K. at Manchester’s Intu Trafford Centre."
Thanks to the improved performance plus successful lease renegotiation, the retailer will close around 40 stores this year, down from the 60 it had previously anticipated, according to the release. The retailer will also open, right-size or remodel a total of 70 stores in fiscal 2018.
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