As Abercrombie & Fitch Co. prepares to blow out 125 birthday candles later this year — and deals with a possible takeover — young family member Hollister continues to eclipse its evolving older sibling Abercrombie, which remains a “work in progress.”
That’s according to Fran Horowitz, chief executive officer, who said during Thursday morning’s conference call to Wall Street after posting first-quarter results: “There is still much work to be done and we continue to focus on aggressive execution of our plan, and what we expect will be a continued promotional and generally challenging retail environment in the second quarter. Our largest brand, Hollister, feels the momentum from its now solid base.…We would characterize Abercrombie as a work in progress.”
With store traffic headwinds and a commercial environment that remains an industry challenge, the ceo said the company has remained focused on acquiring customers and finding ways to innovate, as well as strengthen its brands and adapt to the changing landscape. She also gave management a pat on the back for noting the fundamental shift in retail, which led to early investments in building its direct-to-consumer infrastructure that Horowitz said is “paying off.” Those investments have helped the company become omnichannel, “allowing customers to start in one medium, migrate to another and engage with the brand and complete sales across platforms and locations,” she said.
The ceo added that the company expects improvement in the second half, when it will be able to see returns from its strategic investments in marketing and omnichannel.
With Hollister having the advantage on its turnaround — it had an early head start when Horowitz was its then-brand president — the younger teen brand known for its Southern California lifestyle aesthetic now can boast growth in two categories: Swim and its relaunched Gilly Hicks intimates concept. The ceo said in a telephone interview that the extent of the assortment and space carve-outs in the stores for the Gilly Hicks concept vary depending on the size of the particular store site.
Further, she said the quarter saw Hollister setting a record for the most jeans sold in any first quarter in the brand’s history, with strong performance for guys and girls in full-length pants and the ankle jean. The company is taking what it’s learned from its denim offerings and applying what’s appropriate to the Abercrombie brand based on what’s trending in fashion, with the emphasis so far on fabric innovation and stretch.
Horowitz said of the Abercrombie brand, “80 percent of our customers start to shop at the age of 18, and we’re focused on the twentysomething consumer, but narrowing that focus down to really the early 20s from 21 to 24” for the brand.
Other learnings from its Hollister turnaround applicable to Abercrombie include smaller footprints for its stores. According to Horowitz, the company learned from Hollister that it could improve productivity by driving brand engagement and conversion in smaller footprints. When it opened its Abercrombie test concept earlier this year at the Polaris Fashion Mall in Columbus, Ohio, the square footage was at 4,860 square feet, and fewer stockkeeping units gave the smaller store a boutique ambience. That’s compared with the 7,800-square-foot average of its U.S. stores. The company plans to open seven new prototype stores this year, with four of them having reduced footprints, she said. Horowitz declined to provide details of those locations.
Abercrombie posted a wider first-quarter loss, while revenues slipped 3.6 percent for the period ended April 29. The net loss was $61.7 million, or 91 cents a diluted share, on net sales of $661.1 million. Hollister comparable-store sales were up 3 percent, but were down 10 percent at Abercrombie. Wall Street was expecting a loss of 70 cents a diluted share on revenues of $651.3 million.
The revenue surprise was enough to send shares of Abercrombie up 9 percent to close at $14.06 in Big Board trading on Thursday. At that trading range, the specialty retailer’s market cap is $955.7 million, which helps make it a potential takeover target. Earlier this month, the company confirmed it is in talks with parties about a possible transaction. Its mall competitor American Eagle Outfitters Inc. is one of those interested in exploring a possible acquisition. Horowitz did not disclose the status of those discussions during the call to Wall Street, and she declined comment during the telephone interview.
Jefferies analyst Randal J. Konik has a “hold” rating on shares of Abercrombie, with a price target of $13 a share. He said the second-half weighted outlook makes the turnaround a “show me” story.
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