Abercrombie & Fitch Co. is heading into holiday 2021 with plenty of confidence, a “promising start,” and a big week ahead, in the aftermath of sustained momentum seen last quarter.
“This is one of the most important weeks of the year. There is so much energy and excitement around this week online and in stores,” Fran Horowitz, chief executive officer, told WWD on Tuesday.
Earlier in the day, the company reported net income of $47.2 million for the period ended Oct. 31, compared to $42.3 million in the year-ago period, or 77 cents a share versus 66 cents a year ago. On an adjusted basis, income per share was 86 cents compared to 76 cents a share in the year-ago period.
Total sales rose 10 percent to $905.16 million from $819.65 million in the 2020 period, and rose 5 percent compared to the $863.72 million in sales during the third quarter of 2019.
Horowitz said this week really kicks off A&F’s holiday campaigning with major social media via a TikTok “takeover” that launched Tuesday, will run new ads every day for a week, and will reach 75 million Americans that fit into A&F demographics.
“We are expecting a December that’s much more similar to last year,” than years before, Horowitz said in an interview. Instead of peaks and valleys, she sees more of an even pattern of business for December as well as for the Black Friday weekend. Prior to the pandemic, after the Black Friday weekend and Cyber Monday, retailers typically saw a lull in shopping until approximately 10 days before Christmas when business would rebound.
Shifting to product results, Horowitz called out denim as the biggest best seller during the third quarter, across all A&F brands and in both genders. She cited in women’s lighter washes, wider legs, the “Mom” and “Dad” jeans, and in guys, straight-leg and tapered jeans, as well as patchwork and distressed and reworked jeans specifically at Hollister. Other categories selling well were dresses, knit tops and knit bottoms.
She said the company has been able to get around supply chain delays, through air shipping, using a diversity of ports and having a “seasoned” supply chain team.
Higher shipping costs are being offset by higher average unit retail prices. The company sees $75 million in higher freight costs for the fourth quarter.
Horowitz also told WWD that next year, A&F could see a return to net brick-and-mortar square footage growth, though it would be modest with a few store openings. The company continues to reposition its fleet by closing larger and costly locations and replacing them with smaller, omni-capable stores. For 2022, the goal is to keep square footage flat or slightly up.
“We are ready to compete and win for holiday,” Horowitz said. “We are well positioned to compete in the fourth quarter. We are off to a good holiday season. Our stores and distribution centers are well staffed.”
Results were bolstered by an “outperformance” in the U.S., a “highly engaged” base of shoppers responding to aggressive social media marketing, the addition of more than 2 million customers globally, reduced markdowns and promotions, improved full price sell-throughs and operating with 20 percent less retail square footage than 2019. Money saved by downsizing the store fleet has been getting reinvested in digital activities. Horowitz said digital net sales rose 8 percent from last year, representing 46 percent of total third-quarter sales.
Horowitz, during a conference call with retail analysts, cited a “buy-it-when-you-see-it attitude” on the part of consumers.
“The start of the holiday season has been promising,” she added. “Customers have come out early to shop and have been responding well to assortments. We continue to actively manage through ongoing supply chain constraints, including production and delivery delays and elevated costs, and are confident that we have the product, marketing voice and omnichannel experience to surprise and delight new and existing customers throughout the fourth quarter.”
The company is forecasting operating margins between 9 and 10 percent for 2021, which would be the best since 2008.
While the U.S. business was strong last quarter, internationally, with the exception of the U.K., A&F’s business continues to be impacted by COVID-19 and geo-political climate in China. The U.S., A&F’s largest market, experienced ongoing strength, growing 17 percent on a one-year and 12 percent on a two-year basis.
On other third-quarter results, the gross profit rate declined 30 basis points on a one-year basis and increased 360 basis points on a two-year basis, benefiting from average unit retail, or AUR, improvements, offset by elevated supply chain costs.
“Combined with ongoing tight expense controls, we achieved an 8 percent operating margin, representing our best third-quarter operating margin and income since 2012,” Horowitz said.
By brand, Hollister sales rose to $522.31 million, a 10 percent gain from $476.67 million in the 2020 period, and a 1 percent gain from $514.77 million in the 2019 period. Hollister includes the Hollister, Gilly Hicks and Social Tourist brands.
Abercrombie’s sales rose to $382.85 million last quarter, a 12 percent gain from $342.99 million in sales in the 2020 quarter and a 10 percent gain from $348.7 million in the 2019 quarter. Abercrombie includes the Abercrombie & Fitch and abercrombie kids brands.