Abercrombie will close up to 40 stores and remodel/open 85 locations in 2019

Abercrombie & Fitch Co. continued its comeback in the fourth quarter, notching its sixth straight quarter of positive same-store sales. The chain is also continuing to evaluate its store portfolio, closing some locations, opening new ones and remodeling others.

The apparel retailer on Wednesday reported fourth-quarter earnings and sales expectations that beat the Street and provided an upbeat outlook. It also said it would close up to 40 stores in fiscal 2019 and deliver 85 “new store experiences” through new store prototypes, remodeled stores and “right-sizes.” It’s expected that 40 of the 85 will be new stores featuring less square footage.

Abercrombie has been updating the look and feel of its namesake stores, with a more contemporary look that is more open and inviting and less dark that the chain’s previous format. On the company’s quarterly earnings call, CEO Fran Horowitz said that stores with the new format are proving to be “highly productive” and the company would continue to invest in them.

Abercrombie’s net income rose to $96.9 million, or $1.42 a share, for the quarter ended Feb. 2, from $74.2 million, or $1.05 a share, in the year-ago period. Excluding non-recurring items, adjusted EPS slipped to $1.35 from $1.38, but still easily topped analysts’ estimates of $1.15.

Net sales fell 2% to $1.16 billion, but beat estimates of $1.13 billion. (The results reflected a calendar shift and one less week compared to the fourth quarter last year.) By division, Hollister sales rose 1% to $712.9 million, beating estimates of $690.9 million, while Abercrombie sales fell 9% to $442.7 million, below expectations.

The company’s total same-store rose 3.0% in the fourth quarter, double what the Street had expected. By division, same-store sales rose 6% at Hollister and fell 2% at Abercrombie.

“At brand level, there is now a clear divergence between Abercrombie and Hollister,” said Neil Saunders, managing director, GlobalData Retail. “Hollister is a brand that is strongly connected to its core customer base, both through impressive marketing and an assortment that is attuned to their needs and tastes. Our data show that affinity to the Abercrombie brand, although much improved, is a more tenuous than Hollister. This means that Abercrombie was more exposed to the loss of consumer momentum in the general economy after Thanksgiving and Black Friday.”

Abercrombie’s net sales for the full year rose 3% to $3.6 billion, despite the adverse impact from the loss of fiscal 2017's 53rdweek, the company noted. Same-store sales were up 3%.

“We ended 2018 on a strong note, recording our sixth consecutive quarter and second consecutive full year of positive comparable sales while exceeding $1 billion in annual digital sales,” stated Horowitz. “Most importantly, while delivering on the top-line, we drove gross profit rate improvement and operating expense leverage resulting in 100 basis points of adjusted EBIT margin expansion and a 77% improvement in adjusted net income for the full year.

For 2019, the company expects sales to rise 2% to 4%, significantly more than analysts had forecast.