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CEO: Abercrombie Isn’t ‘Just a Jeans and T-shirt Business’

Abercrombie & Fitch Co. says it’s starting to be known for much more than denim.

In a Nutshell: The specialty chain on Wednesday posted quarterly earnings above Wall Street’s estimates. The Abercrombie brands reported 14 percent net sales growth, its highest first-quarter sales in more than a decade.

“Sales improvement in the quarter was balanced across genders, channels and geographies,” said Fran Horowitz, the Ohio fashion retail company’s CEO. “The women’s business led our turnaround and continues to trend strong with its 11th consecutive quarter of double digit increases. More recently, we’ve seen the men’s business turn on delivering its third consecutive quarter of growth.”

Abercrombie, she said, is “no longer just a jeans and T-shirt business. We’ve been able to expand into dresses and to all sorts of occasions to satisfy this consumer.”

Across genders, average unit retail was up its “highest level since 2005,” giving a boost to overall gross profit rate improvement,” the CEO said. Gross profit rate in the quarter was 61.0 percent up 570 basis points from a year ago, with lower freight costs lending an assist.

Horowitz said the Abercrombie imprint is “really becom[ing] a lifestyle brand” that making a name in dresses. “You know, we have become a destination for the consumer looking for dresses, whether that’s special occasion, whether that’s wear to work, whether that’s going out,” she said. “It’s really been a big win for us.”

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Hollister is still “testing and collecting feedback” to figure out the teen-centric product piece by piece. “We’ll have fully addressed the assortment as we enter the second half of the year,” she said.

Teens also are shifting “a little bit out of denim and into some non-denim bottoms” including on-trend cargo styles as well as dresses.

With Hollister’s inventory down more than the total company level of 20 percent, the brand is in an “excellent position” to put money behind “winning categories” through the critical back-to-school season, she said.

Horowitz told Sourcing Journal that customers are still looking for denim, but also spending in adjacent categories to build their wardrobe.

“So, instead of buying two pairs of denim, they’ll buy one pair of denim and a pair of cargo pants or a pair of trousers and she will buy a dress,” Horowitz said. “We just have to make sure that the inventory supports a balanced assortment and enough choices beyond denim.”

The CEO doesn’t see the interest in dresses fading anytime soon. “We just keep launching new bodies, new silhouettes and she keeps responding,” Horowitz said.

Net Sales: For the three months ended April 29, net sales rose 2.9 percent to $836 million from $812.8 million. Comparable sales were up 3 percent.

Abercrombie brand net sales, including Abercrombie & Fitch and Abercrombie kids, jumped 13.6 percent to $436.0 million, while the Hollister group, including Hollister, Gilly Hicks and Social Tourist, reported a 6.7 percent fall to $400 million.

Consolidated U.S. net sales rose 8.7 percent to $636.1 million. International sales declined 12.2 percent to $199.9 million, including a 15.1 percent decline to $139.3 million in EMEA (Europe, Middle East and Africa), an 11.5 percent increase to $33.3 million in APAC (Asia Pacific), and a 19.2 percent decrease to $27.3 million in other countries.

Earnings: Net income swung to the black to $16.6 million, or 32 cents a diluted share, from a net loss of $16.5 million, or 32 cents, in the comparable quarter.

Wall Street was looking for an adjusted diluted loss per share of 5 cents on $814.5 million in revenue.

“We are pleased with the state of the supply chain with freight cost decreasing and shipping times improving compared to the past couple of years,” said chief financial officer Scott Lipesky, who added chief operations officer to his titles and scope of responsibility this month.

“We expect to run inventory lower than last year for the second and third quarters and in line with last year by the end of the fourth quarter,” he said. The company front-loaded inventory in 2022 to sidestep supply chain disruptions.

The retailer plans to open as many as 40 new stores, close up to 25, and remodel about 15 store remodels, with Abercrombie & Fitch banner and the U.S. benefitting from many of the openings, according to Lipesky.

Abercrombie, he continued, seems to be expanding beyond its roots as a teen and 20something brand. “The addressable market, now that we’ve aged up with this consumer, is post-collegiate up to the 40’s and beyond,” Lipesky said. “That is a very large addressable market versus the teen space where we’ve operated in the past.”

After the company raised some prices last year, “We don’t have any aspirations to continue to take tickets up,” Lipesky told Wall Street analysts, saying to Sourcing Journal that last year’s higher cotton prices are starting to come down.

The company expects second-quarter net sales growth of 4 to 6 percent compared to $805 million in last year’s Q2.

Fiscal 2023 net sales are seen growing 2 to 4 percent from $3.7 billion in 2022. That’s higher than the previous outlook of 1 to 3 percent growth.

CEO’s Take: “Looking ahead, we remain cautiously optimistic on consumer demand and our ability to react to a dynamic macro environment, further supported by our strong balance sheet,” Horowitz said. “We are managing inventory tightly and each brand is in a position to chase demand.”