Abercrombie & Fitch surprises in Q2

Abercrombie & Fitch on Thursday posted a much smaller than expected second quarter loss and better than expected sales amid strong demand for its Hollister brand.



The company reported a net loss of $15.5 million, or $.23 per share, for the quarter ended July 29, compared to $13.1 million, or $.19 per share last year. Excluding certain one-time items, Abercrombie posted a net loss of $11.0 million, or $.16 per share, compared to $16.8 million last year. Analysts on average had expected a loss of $.33.



Net sales were a better-than-expected $779.3 million, down from $783.2 million in the year-ago period. Analyst had expected sales of $758.6 million. By brand, net sales increased 6% to $446.6 million for Hollister, and decreased 8% to $332.7 million for Abercrombie over last year.



Direct-to-consumer sales rose 1% to approximately 24% of total company net sales.



Total same-store sales fell 1%. By brand, net sales increased 5% for Hollister (on top of a 3% increase in the first quarter) and decreased 7% for Abercrombie (compared to a 10% decrease in the first quarter).



Abercrombie's surprisingly upbeat results follow the chain's announcement in June that it had ended talks with potential buyers. The retailer had said in May that it was in discussion with several bidders regarding a potential sale.



"We are encouraged by the clear progress across all brands," said CEO Fran Horowitz. "Through aggressive execution of our strategic plan, we delivered our third consecutive quarter of sequential comparable sales improvement. Hollister continues to build on its strong foundation, leveraging higher levels of customer engagement to drive growth across all touchpoints, and demonstrates how the customer responds when product, brand voice and brand experience are aligned."



Håkon Helgesen, analyst at GlobalData Retail, said that while the quarter's results represent a step in the right direction, Abercrombie remains a company in two halves.



“Hollister is recovering nicely and is gaining ground, while Abercrombie is showing some signs of life but is still struggling overall,” Helgesen said.



The analyst added that the namesake brand is making some progress, with improvements on the product front, including a focus on quality classics and a condensed and clearer range that makes Abercrombie stores easier to shop.



“However, the issue we have is that it is still not clear what Abercrombie is and at whom it is targeted," Helgesen said. "In some ways, the brand understands that it needs to reinvent, but is not entirely clear what it wants to become.”



Abercrombie said it expects same-store sales to be flat or grow slightly in the second half of the year.



"While we expect the environment to remain challenging and promotional in the second half, we expect to see benefits from the continued improvement in product assortment, our strategic investments in marketing and omnichannel, and our ongoing efforts to optimize productivity across all channels," Horowitz stated.



While Hollister is the star, Abercrombie is still working to turnaround its namesake brand. The company is rolling out a new prototype http://www.chainstoreage.com/article/abercrombie-set-unveil-new-more-inclusive-store-prototype that is smaller than its traditional footprint, with a more inviting and open look.



"We are on a revitalization journey,” Horowitz said on the chain's quarterly call with analysts. “We are encouraged by Abercrombie’s progress throughout the quarter. We’re on track.”



The retailer expects to open seven new stores in fiscal 2017, primarily in the U.S., and two new outlet stores. In addition, it expects to close approximately 60 U.S. stores during the fiscal year through natural lease expirations.



Abercrombie operates approximately 900 stores across its namesake and Hollister banners across North America, Europe, Asia and the Middle East.