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Abercrombie Sees New Trend Emerging

A new non-denim bottoms trend seems to be emerging at the parent of Abercrombie, Hollister and Gilly Hicks.

In a Nutshell: Abercrombie women’s sales were “off the charts,” Abercrombie & Fitch CEO Fran Horowitz told Sourcing Journal in a telephone interview.

“She is buying both jeans and pants. And that’s because probably [with] the jeans she can still wear them to get a little bit more dressed up. The pants are clearly an incoming trend.”

Abercrombie men’s showed some improvement in the quarter. “In the second quarter we started to see some green shoots and we were excited to see some growth in the third quarter,” she said, noting growth in some of the bottoms categories, some tops and outerwear.

For Hollister, Horowitz said “there has definitely been a shift out of denim into both non-denim bottoms, including cargo, as well as tops,” adding that the inflation-pressured consumer is buying a top to update her look as opposed to buying a new pair of jeans.

But Horowitz said that while jeans are the most important go-to item for back-to-school, it becomes less important heading into the fourth quarter. While there are some “new things happening outside of denim, there’s still a lot of things happening in denim—the high rise, the wider legs, all of that is still important for that consumer,” she pointed out.

Business improved from the second into the third quarter. For now, Hollister is seeing more of an inflation impact than Abercrombie.

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She said the tops business was particularly strong. Even if Hollister customers can’t buy a “couple pairs of jeans this year, they still want their outfits to look new,” she said.

Horowitz also noted that inventory is 92 percent current season, after making adjustments in the second quarter to match what customers were buying. “So we’re pleased by category and by brand on where we currently are, and we’ll be flat by the end of the year, which is what we said as we set out our strategy,” she said of inventory levels.

Hollister saw strong sales of tops in Q3.

Horowitz said the company’s disciplined approach to promotions is based on what is and isn’t working, not what’s happening at rivals. “Our promotions are considerably less than than where we were pre-pandemic and flat to where we were last year,” she said.

For the holiday selling season, she’s expecting a return to the traditional pre-pandemic period where sales were high over Black Friday and the Thanksgiving weekend, followed by a lull in activity before high traffic returns two weeks before Christmas Day.

On the stores front, “We expect to open 18 Abercrombie adults, 24 Hollisters, 15 Gilly Hicks and three [Abercrombie] Kids stores,” Horowitz told investors. The store openings, around 60 for the full year, “will make us a net-store opener for the first time in more than a decade,” she added.

The company has been rolling out a new Abercrombie store concept featuring elevated fixtures and furnishings, dedicated merchandising categories and updated fitting rooms with customizable lighting. The new Abercrombie store format follows an earlier redesign of Hollister a few years ago. Hollister is also updating its store design, with a concept that’s very open, very bright, very light,” Horowitz told SJ. The newest store that opened at Roosevelt Field on Long Island showcases the concept, but because it’s only a few days old, “we don’t have any information to share,” she said. “What we’re hearing initially from the associates and from the customers is it’s positive.”

The new redesigned stores are delivering 60 percent higher sales per square foot, compared to the average Abercrombie adult store, according to Horowitz.

She also said the new design fosters a “welcoming environment” that complements the brand’s omni-channel focus, as well as its digital shopping experience.

Net Sales: For the three months ended Oct. 29, net sales fell 3 percent to $880.1 million from $905.2 million.

By business, the core Abercrombie brand—including Abercrombie Kids—posted a 10 percent gain in sales to $422.3 million from $382.8 million. Hollister, including its Gilly Hicks and Social Tourist brands, reported a 12 percent decline to $457.8 million from $522.3 million.

By region, sales in the U.S. rose 3 percent to $674.6 million and were up 14 percent in its “other” category, which is mostly volume sold in Canada. However, sales fell in its two other geographic regions, decreasing 22 percent in the EMEA (Europe, Middle East and Africa) and down 26 percent in Asia Pacific. Chief financial officer Scott Lipesky told Wall Street analysts that strong EMEA performance was seen in the U.K. and Middle East.

During the quarter, Hollister began offering Share2Pay on its mobile app so young consumers can share the contents of their digital shopping bag with another person, most often a parent or other relative, who will pay for the merchandise. Horowitz told SJ that “we’re also going to figure out within the company where else we can utilize that going forward.”

For the nine months, net sales were down 2 percent to $2.5 billion from $2.55 billion.

Earnings: The net loss for the third quarter was $2.2 million, or 4 cents a diluted share, against net income of $47.2 million, or 77 cents, in the year-ago period. On an adjusted basis, diluted earnings per share came in at 1 cent.

Wall Street was expecting a loss of 15 cents per adjusted diluted EPS on revenue of $831.1 million.

For the fourth quarter, Abercrombie guided net sales down in the range of 2 percent to 4 percent from the fourth quarter 2021 level of $1.2 billion.

For Fiscal 2022 full-year outlook, the company is projecting net sales down 2 percent to 3 percent from 2021’s level of $3.7 billion, representing a slight improvement from the prior outlook of down mid-single-digits due to a better-than-expected third quarter.

For the nine months, the net loss was $35.5 million, or 70 cents a diluted share, against net income of $197.5 million, or $3.10, in the same year-ago period.

CEO’s Take: “We are cautiously optimistic as the holiday season kicks into high gear,” Horowitz said. “We have strategically adjusted our inventory receipts for holiday and early-2023, and unlike last year, we have the inventory on hand to fulfill holiday demand in the peak Black Friday to Christmas period.”