After rebounding in 2010, Abercrombie & Fitch has become more bullish on the future.
This story first appeared in the April 6, 2011 issue of WWD. Subscribe Today.
The specialty retailer now sees global sales reaching at least $7.5 billion by 2015, and split roughly even between domestic and foreign operations as it spreads its sexy, youthful, casual appeal worldwide.
A&F has also projected earnings of $4.75 a share for the year, well ahead of Wall Street’s estimate of $3.97 a share.
The heady forecasts, made during the retailer’s investor day conference at its Columbus, Ohio, headquarters, pushed the stock up 10.8 percent Tuesday, or $6.40, to $65.57, its highest level in nearly three years. It was the strongest performing issue among the 170 tracked by WWD, coming on a day when the S&P Retail Index hit a new 52-week high of 529.47 before ending the day at 526.77, up 1.3 percent.
The 2015 projection represents more than a doubling of the retailer’s revenues, which came to $3.47 billion last year. For 2010, the company reported $150.3 million in net income versus $300,000 in 2009, and a 7 percent comp-store sales gain. During the recession, A&F struggled with margins and pricing concerns, remaining stubbornly nonpromotional but loosening up as the downturn worsened.
The conference focused on overseas growth, where “four-wall” margins are 35 percent versus 20 percent in the U.S. However, A&F’s chairman and chief executive officer Michael Jeffries stressed, “We are not going to populate the world the way we did the U.S.”
As of the end of last year, the company operated in the U.S. 316 A&F, 181 abercrombie, 502 Hollister and 18 Gilly Hicks stores. Overseas, there were nine A&F units, four abercrombies, 38 Hollister units and one Gilly Hicks.
“Our first priority is controlling these brands,” Jeffries said. “We are obsessive about controlling these brands. The experience and the product is the same from city to city. We tend to sell the same things in the same strength in all of our stores. It’s a remarkable thing, but it makes operating our business easier.”
“Over the next several years we see a number of key growth drivers,” said Jonathan Ramsden, A&F’s executive vice president and chief financial officer, who spelled out the expansion plans. Among those cited:
• Twenty international Abercrombie & Fitch flagships will be operating by the end of 2012, including the five already in business. Those scheduled to open include one in the Alte Post building in Hamburg, and another in The Pedder Building in Hong Kong “to pave our way into China,” Ramsden said. “We see global sales annualized at $1.25 billion” for the Abercrombie & Fitch brand, Ramsden said.
• Hollister, A&F’s younger brand inspired by the laid-back, Southern California beach lifestyle, sees another 40 openings overseas, including 30 in Europe this year, on top of the 38 as of 2010. The store count, over the long term, will be “in the high one hundreds,” around 185, Ramsden said. “We see a $1.5 billion potential,” he said. Regarding Hollister’s expansion in Asia, “It’s too early to put specific numbers on Hollister’s opportunities,” he said. A&F also has designs on expanding into the Southern Hemisphere, though not until 2014. “It’s a whole different kettle of fish when you are in two different climate zones. We’ll have to address it as a whole separate proposition,” Jeffries said.
In other developments cited by executives:
• Direct to consumer sales should reach $1 billion in the next few years.
• Four or five concepts for clearance and factory outlet venues are being tested.
• There’s a “long-term opportunity for Gilly Hicks but it’s too soon to get specific,” Jeffries said. Gilly Hicks sells bras, underwear, personal care products, sleepwear and at-home products.
• Improved productivity at U.S. stores is seen, as weak units get closed. The retailer expects to achieve 90 percent of 2007’s productivity by 2012 and eventually 100 percent, although no time frame was set.