Abercrombie profit drops as sales rise; company ‘cautiously optimistic’

A strong performance by Abercrombie & Fitch Co.’s namesake brand helped drive the chain’s fourth-quarter and full-year sales.

Despite a decline in profit, the apparel retailer remains “cautiously optimistic” on consumer demand. It provided upbeat full-year guidance.

Abercrombie’s total sales increased 3% to $1.2 billion in the quarter ended Jan. 29, from $1.16 billion last year, and were up 5% on a constant currency basis.

By brand, Abercrombie’s sales rose 14% to $560.4 million from $492.6 million. Sales at Hollister fell 4% to $639.4 million compared to $668.8 million in the year-ago period. For the full year, Abercrombie’s net sales are up 11%, while Hollister’s are down 9%.

Net income fell to $38.33 million, with diluted earnings per share of $0.75, from $65.50 million, with diluted earnings per share of $1.16, in the year-ago period.

“Results were driven by continued, strong momentum in the Abercrombie & Fitch brand and sequential improvement in Hollister as we continue to stabilize the brand’s performance,” stated CEO Fran Horowitz. “In a year with significant inflation and global macroeconomic disruption, our teams leveraged our agile operating model to redirect expense and inventory investments. These efforts helped drive sequential sales improvement in the last two quarters, while progressing on key growth initiatives across digital, technology and stores.”

For the year, Abercrombie had net sales of $3.7 billion, approximately flat to last year on a reported basis and up 2% on a constant currency basis. The retailer said it ended the year with 44% digital penetration, growth in AUR, net store count growth, inventory down 4% to 2021, and reported and adjusted operating margins consistent with 2019 pre-pandemic levels despite approximately $300 million of product cost inflation since that time.

Looking ahead, Horowtiz said the company is “cautiously optimistic” on consumer demand.

“Our Abercrombie & Fitch brand continues to be a leader in the industry, and multiple actions we have taken in the Hollister brand are resulting in sequential net sales trend improvement,” she said. “We are pleased with our inventory levels and each of our brands is in a position to chase.”

Although the company expects to see net product cost benefits in 2023, it will continue to tightly manage it expenses, inventory and cash flow, Horowitz added.

For 2023, the retailer expects net sales growth in the range of 1% to 3%m and that  Abercrombie will continue to outperform Hollister and the U.S. will continue to outperform international. First-quarter net sales are expected to be roughly flat, at $813 million.

Abercrombie & Fitch Co. operates approximately 770 stores — including 560 locations in the United States — across its brands in North America, Europe, Asia and the Middle East. Ninety-one percent of its U.S. fleet is located in A- and B-level malls.