Abercrombie & Fitch Reports Whopping 21 Percent Q2 Sales Surge, Raises Outlook, but Stock Plummets
This story was updated Aug. 28 at 6:15 p.m.
Abercrombie & Fitch, transcending soft consumer trends globally, extended its streak of strong quarterly gains and reported a stunning 21 percent second-quarter sales uptick.
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The company also reported Wednesday that it raised its forecast for 2024, for the second time this year.
Net sales in the quarter ended Aug. 3 increased to $1.1 billion, from $935.3 billion in the year-ago period, and comparable sales rose 18 percent.
Net income last quarter rose to about $250.5 million, or $2.50 per diluted share, from $76.6 million, or $1.10, from the year-ago period. Operating income rose to $176 million as compared to operating income last year of $90 million.
The results marked the seventh straight quarter of gains for the operator of the Abercrombie, abercrombie kids, Hollister and Gilly Hicks brands.
Now the company is eyeing net sales growth in the range of 12 to 13 percent for 2024, versus the previous outlook of around 10 percent. A&F had initially raised in its outlook at the end of the first quarter this year.
But apparently Wall Street expected more from the company, particularly on the outlook and concerns that comparisons will become more challenging in the future, and dragged the stock price down 16 percent or about $28.30 to $138.31 by the closing bell Wednesday.
Still, the company cited “broad-based net sales growth across regions and brands, with Abercrombie brands growth of 26 percent and Hollister brands accelerating to growth of 17 percent.”
The company also cited a good start to the back-to-school season.
“What we’re seeing in back-to-school is a nice reaction,” Fran Horowitz, chief executive officer, told investors and retail analysts during a conference call Wednesday. “It was actually two years ago this quarter when we took a step back a bit and had to really inspect what was going on with our back-to-school and our Hollister brand, which we spent a lot of time rebuilding and rebranding. What we’re seeing is continued AUR (average unit retail price) growth. Since 2019, we’ve had double-digit growth in actually both brands and excited to see what that’s driven by which as you know is comes down to product acceptance and financial control of our inventories. So we’re seeing a balanced growth across brands and categories.” Hollister caters to teens, while Abercrombie targets those in their 20s.
Earlier this month, A&F announced a partnership with Haddad Brands to grow the distribution of its abercrombie kids brand. Haddad specializes in children’s apparel and accessories and is the exclusive global licensee for Nike, Jordan, Converse and several other brands with childrenswear. A&F will continue to design, produce and sell Abercrombie kids in its owned-and-operated channels, while Haddad focuses on creating distribution channels for the brand and growing the product line by adding infant and toddler categories to the existing assortment for 5- to 14-year-olds. The partnership marks the first time that Abercrombie kids will be sold at non-Abercrombie stores.
“We’re continuing to look for opportunities to grow our business around the world,” Horowitz said, when asked about the Haddad Brands partnership. “Our brands are stronger than ever, and an opportunity to partner to grow kids, particularly outside of North America, where the majority of our business is today, just speaks to long-term opportunities ahead for us.”
In recent quarters, A&F has benefitted by being more inclusive in its advertising and imagery, gaining popularity through influencer and affiliate programs, updating its store design, which is smaller and more open, differentiating its Abercrombie and Hollister brands to appeal to different age segments, and listening more to consumer preferences.
Researchers from William Blair & Co., an investment bank and financial services company, in a report cited A&F’s “strong results against heightened expectations and harder comparisons,” while adding that “a tougher demand environment adds to skepticism around the capacity to comp the comp further into 2025.” That could account for investors dragging the stock price down on Wednesday. Otherwise, the report noted, A&F deserves credit due for “bucking the trend of a tougher operating environment and holding price in a price-sensitive market. Valuation feels relatively appropriate given our expectations for long-term growth prospects most likely in the low- to midsingle-digit range before accounting for risk of margin giveback as that growth materializes, which is the largest risk for shares.”
Neil Saunders, managing director of GlobalData, a data and analysis firm, called the year-over-year sales lift “very impressive.”
“On a two-year basis, revenue has increased by a whopping 40.9 percent. This is nothing short of a gold medal performance in retail, especially as it has been delivered at a time when the going is a little tougher than normal,” Saunders said. “They key to this success isn’t complicated to explain, although it is way more difficult to execute. At its heart is a complete focus on the customer aligned with operational flexibility to respond to changes and shifts in the market. A great example of this is the way the company has made its supply chains nimbler so that it can chase and quickly respond to emerging fashion trends. This ensures that assortments always look fresh, but more importantly that they are relevant to shoppers.
“From our data, Abercrombie is the beneficiary of two favorable trends,” Saunders added. “The first is expanding its share of wallet from existing customers who are buying more deeply into ranges. This has partly been engineered by Abercrombie widening its assortment to more ‘wearing occasions’ such as sports and athleisure, as well as through collections that continue to be on-trend. The second is pulling in new customers who are either discovering or rediscovering Abercrombie. One thing that is interesting here is how the business is increasing appeal to middle aged and older shoppers as well as younger cohorts.
Saunders said Hollister, while being a successful business, “has lacked the momentum of Abercrombie due to financial pressures on its core customers and some issues with ranges. However, management as very alert to this and worked hard to course correct. The result is a much more compelling proposition — including over the important back-to-school period which started earlier this year — which is now delivering the numbers.”
“Our team continued to execute at a very high level in the second quarter, resulting in better than expected sales growth and profitability,” CEO Horowitz said. “The strength of our brand portfolio and improvements we’ve made in global capabilities resulted in broad-based growth across regions, brands and channels. The Americas led our performance this quarter with net sales growth of 23 percent on top of 19 percent growth last year, along with continued strong results in EMEA with growth of 16 percent.
She said that by brand, Abercrombie brands grew 26 percent on top of 26 percent growth last year, and Hollister grew 17 percent with better-than-expected summer and b-t-s sales. Profitability continued to improve, she said, and the company had a second quarter operating margin of 15.5 percent with “record-setting” operating income at $176 million, she added.
“Although we continue to operate in an increasingly uncertain environment, we remain steadfast in executing our global playbook and maintaining discipline over inventory and expenses,” Horowitz said. We are on track and confident in our goal to deliver sustainable, profitable growth this year, while making strategic long-term investments across marketing, digital and technology and stores to enable future growth.”
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