Abercrombie & Fitch

Though sales and profits were down, Abercrombie & Fitch Co. had a decent quarter, all things considered.

“We are pleased with what we are seeing and slightly beating our expectations,” Fran Horowitz, chief executive officer of A&F, told WWD on Thursday, just after the company reported that its net loss widened to $244.2 million in the period ended May 2 from $19.2 million a year ago, and net sales fell to $485.4 million from $734 million a year ago.

Hollister sales in the first quarter were $273 million, a 36 percent decline from last year’s $428.5 million. Abercrombie sales were $212.3 million, a 30 percent drop from $305.5 million in the year-ago period.

On the positive side, the youth retailer has reopened almost 50 percent of its brick-and-mortar fleet since they were temporarily closed in March. Those stores opened in the U.S. and the EMEA region are running 80 to 60 percent of their normal productivity, respectively, with traffic “steadily building week over week.” And digital sales grew 25 percent to $275 million.

There are signs that fashion is coming back despite the pandemic, with dress sales picking up. “We are seeing a nice reaction to the Abercrombie women’s dress businesses,” Horowitz said. “Women are thinking about post-quarantine opportunities to reunite with friends, and on Zoom calls and cocktail hours online, they’re getting dressed. This is a very social group.

“Our stores are reopening everyday. Our goal by the end of June is to have a high majority of our stores opened, in the 90 percent range,” said chief financial officer Scott Lipesky, who participated in the interview.

“The health and safety of our employees has been our number-one focus” through the health crisis, Horowitz said. “Remember, we were one of the first retailers to close our stores. Anyone who feels uncomfortable returning to work won’t have to. The majority of our associates are excited to come back.”

Horowitz visited the company’s stores in the Easton Town Center in Ohio, near the A&F headquarters campus, and was “proud and excited” to see how engaged the associates were. “It was nice to be back in the stores and see my team in action and see how well they are doing.”

Intensified social media has spurred online sales. “Our social engagement with our consumer with all of our brands is very, very strong,” Horowitz said. Earlier this month, Hollister hosted a virtual prom on Instagram Live, where more than 70,000 teens celebrated together from home. The virtual prom featured a live musical performance from Icona Pop, before-and after-prom meal giveaways in partnership with DoorDash, and hair and makeup tutorials with brand agents. The company also held a virtual Easter brunch. “We call this user-generated content,” said Horowitz, adding that the two events were occasions to dress up and discuss experiences.

Bestsellers last quarter at Hollister included girls fleece, knit tops and knit bottoms, loungewear and swim. On the men’s side, fleece tops, graphics and active — particularly sweat pants — performed well.

At Abercrombie, women’s knit T-shirts, skirts and jeans, and men’s joggers were among the bestsellers. Gilly Hicks’ activewear, which launched last year, sold out online in the first few weeks and receipts have been accelerated.

Asked if the pandemic and its potential long-term impact is causing the team to rethink the assortment, Horowitz replied: “What I tell everyone on our campus is to keep a balance” of basics, fashion and categories. “Certainly, there will be shifts, but in terms of the degree of percentage changes, we don’t expect to see anything significant. We have a very agile supply chain. We keep inventories very fluid so we can respond weekly with the product based on what we see happening out there.”

A&F has 409 locations open, representing 48 percent of the store fleet. In the U.S., 285 stores are open, representing  45 percent of the domestic base. In Europe, 79 stores, representing about 55 percent of the fleet there, is open, and in China, just about all of the stores have reopened. Last year, the company reduced its retail square footage by 4 percent. The company continues to rationalize the square footage, based on store performances, leases and their terms, and digital sales growth. There is currently no projection on square footage reduction for this year, though more than 200 leases expire at the end of 2020. “We are willing to walk away from any location if we do not get terms that work for us,” Lipesky said. “We need our stores to be the right size in the right location at the right economics.”

Among recent changes to help A&F navigate through the health crisis:

• Terms with vendors have been extended out. A&F ended its quarter with inventory down 1 percent.
• $200 million in the expense structure was removed.
• Cap ex was taken down 50 percent to $100 million seen being spent this year.
• A partnership with ThredUp was announced in April.
• Testing of curbside pickup began.
• Ship from store commenced in the quarter, though it’s expensive.
• “Pack and hold” began. “It’s a small piece of our inventory and getting smaller everyday as we start to unpack some of that to meet demand,” Horowitz said.