A strong start to the holiday season, comparable sales gains in the third quarter, a growing loyalty customer base and digital sales on track to hit $1 billion this year all gave Abercrombie & Fitch Co. shares a boost as investors sent the stock up 20.9 percent in Thursday’s trading session.
Shares of Abercrombie closed at $20.70 in Big Board trading after the specialty retailer posted third-quarter results that bested Wall Street’s consensus estimate. The retailer delivered diluted earnings per share of 33 cents a share, 13 cents over the projected 20 cents by analysts.
In a telephone conversation with Fran Horowitz, chief executive officer, she said sticking to the company “playbook” helped drive improvements in the quarter. That playbook has a central theme for the Abercrombie and Hollister brands where the consumer and his or her wants become the central focus. That seems to be working as the company’s earnings report Thursday marked the specialty retailer’s fifth consecutive quarter of comp sales growth for the company, the eighth in a row of positive comps for Hollister and the fourth for Abercrombie. It also represented the first time in almost five years that Abercrombie the company posted positive comps on top of positive comps.
As for the brand comps, Hollister delivered a 4 percent gain on top of a positive 8 percent comp last year. Much of that growth has been due to the playbook, which has the company being more responsive to fashion trends and what appears to be a growing demand for wear-now product. Abercrombie’s comps rose 1 percent in the quarter.
For regional performance, the U.S. business saw positive comparable sales growth of 6 percent on top of plus 6 percent a year ago, while international saw sequential comps improvement in Europe, according to Horowitz. As for the digital business hitting $1 billion this year, the ceo said, “Digital has been growing over the last several years. That’s a nice milestone for us.” She also said that “mobile [shopping] makes up over 75 percent of the digital traffic” across the brands.
Joanne Crevoiserat, chief operating officer, explained in the telephone interview that growth in mobile has been boosted by the company’s continued investment in digital capabilities and integration on the omnichannel front, which include buy online, with in-store pick-up, and ship from store.
But as the company has been doing better, it also has taken another look at its store count. Abercrombie expects to close 40 stores in 2018, or one-third fewer stores than originally expected. Crevoiserat explained that the smaller number of store closures has been due to a combination of improved performance at some stores and better lease terms negotiated with landlords for some sites. Abercrombie has been culling its store fleet for the last several years, and will still have closed more than 450 stores by the end of 2018, and it also has 60 percent of its U.S. leases coming due for renewal by the end of fiscal 2020.
Crevoiserat emphasized, “We are adjusting the fleet to the changing and evolving shopping preferences of our customer. We believe that stores matter and are investing in our stores.”
The company just opened its first European mall-based prototype stores in Manchester, and will open another next month in a shopping center in Frankfurt. And as the company looks to expansion in the European and Asian markets, Horowitz told analysts during a conference call, “As in the U.S., we believe the key to success is having an obsessive focus on the customer. We’re getting closer to our local customer in each of our international markets, leveraging our loyalty program data, building on our local infrastructure and developing our teams and processes to ensure timely, market-specific insights that can be used to better inform localized planning and merchandising and marketing.”
Helping to grow the loyalty programs for both brands, and getting closer to the local market, will be Kristin Scott, whom Abercrombie promoted to president, global brands. She was brand president for Hollister, and the company has decided to eliminate its brand president positions.
Horowitz said of Scott: “Kristin drove a lot of loyalty [initiatives] at Hollister, and will continue that as she gets into Abercrombie.” The ceo added that upcoming initiatives mean the company “will be even closer to our customer than we [already] have been.”
Horowitz told WWD that what’s been resonating with consumers is its outerwear collection, highlighted by its Ultra parka and puffer line introduced last month. “We’re also seeing a nice response to [anything] nice and soft, cozy, fleece, Sherpa and faux fur lining.”
She said the company has also received a “solid reaction” to third-quarter back-to-school offerings for Gilly Hicks in intimates, sleepwear and loungewear. The company is testing side-by-side stores next to a Hollister, as well as some pop-ups. “We’re encouraged by the progress we’re making. There is an opportunity [for the business] overseas,” she said.