In its third-quarter report, Abercrombie & Fitch (ANF) reported a revenue of $1.06 billion, up 20% over the same period last year. Shares of the company are up over 211% year-to-date. Part of the company's spectacular returns may be due to younger generations' love of 2000's fashion, but is there more to the story?

Abercrombie & Fitch CEO Fran Horowitz joins Yahoo Finance Executive Editor Brian Sozzi to discuss the secret behind the retailer's success and how the company has evolved over the years to produce such a fantastic quarter during a tumultuous time for retailers.

"This lesson that we learned from COVID about keeping our inventories lean, is really, really paying off. Our inventories are clean, they are a result of testing and learning, and the supply chain being back on target and being able to be fluid, is a really big win for us," Horowitz names a key takeaway for unlocking recent success. "We've built a muscle into our sourcing and into our logistics team that's really helping us drive the business."

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Video Transcript

BRIAN SOZZI: Abercrombie and Fitch blowing some minds on Wall Street after a big quarter for the namesake Abercrombie & Fitch brand and, finally, a little bit of a turn over at Hollister. Let's get right to Abercrombie & Fitch CEO Fran Horowitz. Fran, always great to get some time with you. I think-- well, I think you shocked the heck out of a lot of investors with this quarter. Let's start with that Abercrombie & Fitch brand. I have not seen numbers like this, double-digit growth, going back more than 10 years. What's going on here?

FRAN HOROWITZ: Well, thank you, Brian. What an exciting, exciting quarter for the company. So starting with Abercrombie brands-- well, let me back up for a minute. First of all, I mean, this quarter and this year to date really represents the culmination of years of hard, hard work. You've been following this story for quite some time. And you know that we've done a lot of work bottoms up in every single function to make sure that we are a different company today.

Abercrombie adult, super, super exciting. I mean, the 11th consecutive quarter of growth. The women's and the men's business team-- women's businesses both performing. I think that's testament to a lot of things, the fact that we've expanded our age cohort, we've expanded our category offerings, we're seeing success around the world.

I mean, our regions are performing, our channels are performing all good. And then to your point on Hollister, a lot of hard work went into that. Second quarter in a row seeing some nice growth. The team, you know, really dug in last year when the whole teen market took a little bit of a step back. And our team focused on the customer, the assortments. And very proud of what they have out there right now.

BRIAN SOZZI: Fran, we're several weeks into retail earnings. I go back. I looked at Target, looked at Walmart, looked at Kohl's, looked at Macy's. Apparel not good really across the board. Some warm weather, whatever it is-- consumers continue to just not make a lot of discretionary purchases. Abercrombie, I think, is a discretionary purchase. How do you square that with what we're seeing in the economy and what the results show from your brand?

FRAN HOROWITZ: Yeah, I guess-- I mean, two key things. First, the consumer has an-- you know, the consumer has a choice on where to shop. And they're choosing us because the product, the voice, the experience is what they're looking for. And that's a result of staying close to the customer and really understanding what they want.

Really importantly, though, Brian, this lesson that we learned from COVID about keeping our inventories lean is really, really paying off. Our inventories are clean. They are a result of testing and learning. And the supply chain being back on target and being able to be fluid is really a big win for us. We built a muscle into our sourcing and our-- and into our logistics team that's really helping us drive the business.

BRIAN SOZZI: I can't believe I'm going to say this, Fran. But double-digit sales gains, your inventory was down 20%. Are you just running out of things in some of these stores?

FRAN HOROWITZ: I mean, listen, we're not. That's the good news, right? I mean, I think pre-COVID, I think the retailers chased every last sale. And there was a lot of sales that were just not profitable, and you didn't want to have them. And today, it's much more important to stay lean and make sure you have the right assortment in your inventory.

BRIAN SOZZI: Very important point you mentioned. You mentioned this on the earnings call too, I think. The average-- the age band of the shopper in the Abercrombie & Fitch brand now 20 years old to 40-year-olds. I guess I'm not allowed to shop in there. I kind of just slightly fall out of that a little bit, Fran.

FRAN HOROWITZ: 40-- I shouldn't have said 40. I should have said and 40 and beyond.

BRIAN SOZZI: OK, that's fair. That's fair enough. But is it really now that you're capturing an older consumer that has more money in their pockets than, let's say, a traditional teen consumer? And that is a large cohort of people driving these results.

FRAN HOROWITZ: Yeah, I mean, I think when we decided many, many years ago, as you were on that journey with me, that we could decide whether we were going to have-- way back, right, was it one brand or two? And we realized that we could make Hollister the iconic global teen brand and age Abercrombie up into this young millennial brand, where there was a big white space in the market.

So the teams are focused on the 25 plus-- maybe 25 to 30 for merchandising, marketing, et cetera. But those are shopping with us go way beyond that. And they're very excited about the fact that we have diversity in sizing and in fabrications and categories. And that's what they're responding to.

BRIAN SOZZI: Is November off to a good start for this brand?

FRAN HOROWITZ: Yeah, we're encouraged with the start. We said this morning that we were pleased with Hollister and that Abercrombie is off to a great start.

BRIAN SOZZI: Has Hollister, the Hollister business' sales growth up there? Can you declare victory on that on that brand finally turned around?

FRAN HOROWITZ: Yeah, I would say two quarters is definitely the beginning of a trend. And I'm excited that the girls business particularly is very strong. They've got a lot of momentum going. We're still working through the guy's business. So we've got some opportunities there. But we're seeing some categories turn, the non-denim bottoms. The fleece and the sweaters are also starting to turn. So I'm encouraged with what I'm seeing there.

BRIAN SOZZI: And you're back to opening stores again?

FRAN HOROWITZ: We are.

BRIAN SOZZI: How many will you open this year? And what are your store plans next year?

FRAN HOROWITZ: Yes. So last year was the first year we were a net store opener. This year, we're going to open up about 35. So we'll be close to break even. So 35 new stores, 20 new experiences, and closing about 35 stores. So 55 new experiences in total.

An exciting new strategy, though, where we're opening up these neighborhood street locations for the Abercrombie adult brand where we are seeing a local customer as I was in Flatiron last week, seeing one of our new stores. And the associates were telling me already how we're seeing familiar faces come back in and wanting to shop, you know, over and over again. We've opened up on Greenwich Avenue and Connecticut and Newbury Street.

So a whole new exciting opportunity for us. So we haven't declared how many stores yet for 2024. But stores matter. And we are still going to be opening up stores next year.

BRIAN SOZZI: Very important too for your brand-- I think this was at your Investor Day a couple of years ago-- called out a 10% operating margin. Sure it seems like you're going to hit that this year. Is there a new run rate investors should be thinking about?

FRAN HOROWITZ: Yes. In June of 2022, we had our last Investor Day was our always forward plan where we set that as our goal. The one most important thing that we said though, Brian, was making that sustainable. And that's really our focus as we head forward is making sure that all the foundations that we've changed in the company and built is going to drive sustainable growth and sustainable operating margin.

BRIAN SOZZI: I had a colleague remarked to me friend that they have not been in Abercrombie for close to 10 years. Do you think the brand is still dealing with the perception issue?

FRAN HOROWITZ: I think that there's an opportunity for lots of new customers to enter the brand. We've had lots of new customers enter through different categories that we've started to offer. Like, our licensing categories, for example, are bringing in new customers. So I think it's an opportunity. Exciting to see all these new people enter the brand.

BRIAN SOZZI: And, of course, we're coming up against Black Fridays. As the CEO of Abercrombie, how do you spend your Black Friday? And is Black Friday still a big day for you?

FRAN HOROWITZ: It is a big day for me. You know, I'm a merchant at heart, Brian. And I just can't get it out of my-- out of my blood. The energy and excitement that I get being in the stores on Black Friday is just incredible. So yes, I will definitely be out there, seeing all those customers shopping away. Can't wait.

BRIAN SOZZI: What do you look for? When you're in these stores on a Black Friday, what are some things you're looking for?

FRAN HOROWITZ: I'm curious to see the groups of how people are shopping, who they're shopping with, the categories that they're going after. Curious to see what's happening at the competition. You know, walking through the whole mall and just doing a little visual study.

BRIAN SOZZI: All right. Well, enjoy your Black Friday shopping. Fascinating quarter by Abercrombie & Fitch. I assure you, that is not-- this quarter is not going to be the norm out of retail by any means. Fran Horowitz, always nice to see you. Happy holidays.

FRAN HOROWITZ: Yes, you too, happy holidays to you too.

BRIAN SOZZI: Thank you.

FRAN HOROWITZ: Thanks, Brian. Appreciate it.

BRIAN SOZZI: And we'll be right back.