NEW YORK — Abercrombie & Fitch’s campaign to distinguish its brands is making headway, as rising sales helped earnings rebound for the first quarter.
“Our stores have a less promotional look than in recent years, and we are continuing to emphasize quality in every aspect of the business,” said Michael Jeffries, chairman and chief executive officer, during the company conference call.
One day after PacSun reported an earnings rise of nearly 90 percent, the New Albany, Ohio-based specialty retailer saw its own net jump 16.1 percent to $29.7 million, or 31 cents a diluted share, one cent better than Wall Street’s consensus estimate, for the quarter ended May 1. Comparatively, the company reported earnings of $25.6 million, or 26 cents a share, in the year-ago quarter.
Sales for the period increased 18.8 percent to $411.9 million from $346.7 million. Comparable-store sales were flat for the quarter, but as Lehman Brothers analyst Kimberly Greenberger noted in her preview of the company’s earnings, it was the company’s first non-negative comp performance since the first quarter of 2001.
Driving sales was a strong showing from its Hollister concept, which reported a company-leading 9 percent comparable-store sales gain for the quarter.
“Trends by classification in Hollister have been similar to A&F, with denim skirts and knit tops very strong in girls and woven shirts and denim very good on the guys side,” said Jeffries. “I’m very confident about Hollister’s prospects for the balance of this year and beyond.”
The vote of confidence is echoed in management’s expansion plans. According to Seth Johnson, executive vice president and chief operating officer, the company intends to open 85 Hollister stores this year.
“I think we were able to move a little more quickly in the Hollister business than we were in the A&F business to be in the trending classifications,” said Jeffries in a response to analysts’ questions. “This business is moving faster than it ever has before, and we had to just get our team up to get to the right pace of business. It happened slowly during the quarter, but we really saw the impact of newness at the end of the first quarter.”
Analysts see the company’s future in Hollister as well. “Our analysis has implied that Hollister would be of sufficient size to begin driving the total company comps in 2005,” said Goldman Sachs analyst Margaret Mager in her preview of the retailer’s earnings.
In order to give customers fresher product offerings, management focused its efforts on increasing inventory turnover during the quarter. According to Jeffries, carrying a lighter summer inventory load will help the company take advantage of a short, full-priced selling season and prepare it for the back-to-school season.
However, this strategy left the company lacking in some better selling areas. “In hindsight, we could have done a lot more first-quarter business in women’s denim had we been in a better stock position,” said Jeffries, referring to the Abercrombie & Fitch concept.
The company’s next concept, which remains under wraps, is scheduled to make its debut with the opening of four stores in August, followed by a fifth store in late November.
— Ross Tucker