Abercrombie & Fitch reported its strongest first quarter ever on Wednesday, continuing a winning streak that once again exceeded expectations.
The retailer's sales rose 22% compared to last year, while profits were nearly seven times larger and well above Wall Street estimates.
Abercrombie shares closed more than 24% higher on Wednesday.
Here's how the clothing company fared in its fiscal first quarter compared to what Wall Street anticipated, according to a survey of analysts by LSEG:
- Earnings per share: $2.14 vs. $1.74 expected
- Revenue: $1.02 billion versus $963.3 million expected
The company's reported net income for the three months ended May 4 was $113.9 million, or $2.14 per share, compared with $16.6 million, or 32 cents per share. action, a year earlier.
Sales rose to $1.02 billion, up about 22% from $836 million a year earlier.
“We successfully navigated seasonal transitions with relevant assortments and compelling marketing, leveraging agile tracking capabilities and inventory discipline, driving sales above our expectations,” CEO Fran Horowitz said in a press release. “Growth was broad-based across all regions and brands, with Abercrombie brands seeing 31% growth and Hollister brands achieving 12% growth.”
Abercrombie has been one of the biggest winners in the retail sector. As it faces a difficult year of comparisons, the company is taking advantage of the double-digit sales growth it experienced in 2023.
The retailer's comparable sales grew 21%, on top of the 3% growth it experienced in the same period last year. Abercrombie expects sales to rise again in the current fiscal year and raised its revenue guidance.
For the full year, the retailer now expects sales to grow around 10%, compared with a previous outlook of between 4% and 6%. Analysts expected growth of around 7%, according to LSEG.
For the current quarter, Abercrombie anticipates sales will increase by a percentage in the low teens, above estimates of a 9% increase, according to LSEG.
Horowitz plans to build on the company's success by developing its Hollister brand, which accounts for about half of the company's total sales, and adding more categories to its namesake brand. In March, the retailer debuted “A&F Wedding Shop,” a collection of clothing for brides and attendees that can be worn not only for the wedding day, but also for other parties, such as bridal showers and rehearsals.
Pieces in the collection, which include a variety of dresses, bikinis, pajamas, skirts and other items, range from $80 to $150. The average price for a day that is often too expensive for many couples gives Abercrombie an entry into the value-seeking consumer and a foothold in the overall bridal wear market, which is expected to reach $83.5 billion in US by 2030, according to ResearchAndMarkets.com.
During the quarter, the wedding store “clearly exceeded” the company's expectations, Horowitz said.
“And technically wedding season hasn't even started yet, right?” Horowitz said. “We got ahead of that and got it done early.”
When it comes to Hollister, the company is seeing advancements in both women's and men's items. In the same period last year, sales were down 7% at the brand, but this year they are up 12%.
“The men's division returned to growth led by wool t-shirts and pants, as well as trousers, which performed well throughout the quarter. The women's division contributed very well to the acceleration of growth with balance between categories,” said Horowitz . “We saw improved traffic trends in both stores and digital channels, which helped show teen customers the changes we've made to the assortment. Importantly, the Hollister team continues to look for opportunities to reduce discounts and promotions while closely managing inventory levels, further supporting [average unit retail] and expansion of the gross profit rate in the quarter”.
The company also looks to its international markets as another growth channel. During the quarter, sales in Europe, the Middle East and Africa increased 19%, led by the United Kingdom and Germany. In the Asia Pacific region, sales increased 10%, led by China.
“Our teams continue to localize our assortments and operations, and we have made strategic investments in marketing to drive brand awareness in these two key EMEA markets,” Horowitz said of the U.K. and Germany in a call with analysts. “We saw huge digital engagement conversion from new marketing campaigns alongside the benefit of new in-store experiences, particularly in Greater London.”
Horowitz said the company believes there is “more road ahead in both regions” and the strong quarter is further proof that the “playbook is working.”
For the past six years, Abercrombie has been working to transform itself from an exclusionary retailer that used flashy brands and shirtless models to drive sales to a company focused on inclusivity and geared toward millennial workers.
Beyond changing its product assortment and revamping its stores, another crucial aspect of Abercrombie's success has been its marketing engine and how it has relied on influencers and affiliates to communicate its rebrand and market its styles.
In an interview with CNBC, CEO Horowitz said Abercrombie affiliates and influencers remain a “very important part of our business” and its marketing strategy going forward.
“That user-generated content that they create is something that really resonates with our consumer,” Horowitz said.
“People trust and believe in their friends and peers more than they believe in what a company tells them, and we have learned that over the years,” he said.
Consumers surveyed in the EY Future Consumer Index, which includes data from more than 23,000 consumers in 30 countries, echoed that perspective.
The survey found that the majority of respondents, 74%, consider product recommendations from an influencer trustworthy, while 61% said they purchased a product based solely on an influencer's recommendation or promotion.
Abercrombie's transformation has been years in the making, but it began to bear fruit in 2023, when the retailer posted a 16% annual sales increase at the same time as the U.S. apparel market contracted. Its shares rose 285 % in 2023 and are up another 73% year-to-date as of Tuesday's close, outpacing the S&P 500's gains of 11%.
Read the full earnings release here.
