Abercrombie swings to profit; to restart remodel program

Marianne Wilson
Marianne Wilson profile picture

Abercrombie & Fitch got off to a strong start in its first-quarter amid surging digital sales, returning store shoppers, tight inventory control and product that resonated with customers.

The apparel retailer reported that its net income totaled $41.8 million, or $0.64 per share, in the quarter ended May 2 after a loss of $244.1 million, or $3.90 per share, in the year-ago period. Adjusted earnings per share of $0.67 crushed analysts' estimates for a loss of $0.38 per share. 

Sales rose 61% to $781.4 million, beating estimates for $687.0 million. Even more significant, sales were up 6% compared to pre-COVID 2019 first-quarter sales. The increase came despite the reduction of 1.3 million gross square feet of store space, or 20%, compared to the first quarter of 2019.

By division, sales at Hollister, which accounted for 57% of total company sales, rose 62% to $442.4 from $273 million in the year-ago period. Abercrombie’s sales rose 60% to $339 million from $212.35 million.

Digital sales increased 45% to $403 million, accounting for 52% of total first-quarter sales 

“The first quarter is evidence that our shift to a digitally-led global business model is working,” said CEO Fran Horowitz. “Inventories remained tightly controlled and product resonated with both new and existing customers, fueling improved price realization and benefiting gross margin rate, which expanded by 900 basis points. We remained focused on funding key investments in customer-facing initiatives and delivered significant first quarter operating leverage.”

She added that the company’s momentum has continued into the second quarter across all its brands and that reaction to its new brand, Social Tourist, has been “amazing.” The brand, which features trend-forward fashions inspired and co-created by TikTok celebrities Charli and Dixie D’Amelio, is available exclusively in Hollister stores and online.

“Our solid foundation and strong liquidity position enables us to be on the offense,” Horowitz said. “We remain focused on profitable topline growth, our ongoing digital evolution and our growth vehicles, including Gilly Hicks, and are committed to thoughtful expense management and global square footage optimization. I am excited about the future and more confident than ever in our ability to drive sustainable, long-term operating margin expansion.”

In line with its move away from larger format, tourist-dependent flagship locations, the company closed its Abercrombie & Fitch Orchard Road Singapore flagship location during the quarter. The retailer currently has six operating flagships compared to 15 at the beginning of fiscal 2020.

"We believe that stores are a critical part of the omni-channel brand experience and remain committed to investing in smaller omni-enabled locations that better serve our local customers, Abercrombie CFO Scott Lipesky said during the company's earnings call. "This includes restarting our store remodel program and delivering more off-mall formats in the future as we continue to meet our customers where they shop." 

 Lipesky added that company has  roughly 250 leases up for renewal this year.

"We look forward to having thoughtful conversations with our landlord partners to find stores that are the right size, right location and right economics," he told analysts on the call.