Abercrombie & Fitch got off to a good start on recouping last year’s $114 million loss this past quarter.
Building off the momentum it built up in the latter half of 2020, the specialty retailer saw first-quarter operating income climb to its highest level since 2008.
“In the first quarter, the U.S. benefited from government stimulus, a mini back-to-school season and easing of Covid restrictions,” CEO Fran Horowitz said Wednesday on a call with investors. “Internationally, there was the reopening of certain markets, although many large countries remained closed.”
Horowitz praised the performance of Abercrombie’s women’s category. “[It] had a breakout moment, the kind I have rarely seen in my 30-plus years as a merchant, achieving its best Q1 revenue since 2008 and the third largest Q1 in brand history,” she said. This success, she noted, was “broad-based across categories.” Winners included jeans, dresses, intimates and swim. In men’s, she highlighted jeans, shorts and swim.
At Hollister, Horowitz said standout items this past quarter included dresses and fleece tops among girls and soft and cozy products like sweatpants for boys. Both, she said, saw “significant sales improvement” in jeans.
Abercrombie & Fitch closed yet another flagship store in the first quarter, building on an ongoing global store network optimization initiative that Horowitz described as one of the company’s “top priorities.” The plan—which aims to move the brand away from tourist-dependent flagships in favor of smaller, omni-enabled stores—has seen the retailer close nine of its 15 flagship locations since the beginning of fiscal 2020.
“The line between stores and digital continues to blur,” chief financial officer Scott Lipesky said. “We believe that stores are a critical part of the omnichannel brand experience and remain committed to investing in smaller, omni-enabled locations that better serve our local customers. 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.”
To this end, the company has also been building out its social media outreach. “The power of social selling is clearly a key theme for us, and one that we are actively leaning into across brands,” Horowitz said. The company’s embrace of social media and influencers culminated this month with the launch of Social Tourist, a Hollister brand created in partnership with Charli and Dixie D’Amelio—TikTok’s No. 1 and No. 9 most-followed accounts, respectively.
“As our customers continue to shift to digital shopping and exploration across social channels, it made sense to introduce a brand inspired by that world,” Horowitz said.
In a departure from the company’s other brands, she noted, the majority of Social Tourist’s product will live online, with select SKUs available in Hollister stores. It will release items in limited-edition, monthly drops designed “to create excitement and buzz and to sell out,” Horowitz said.
According to the CEO, Social Tourist has generated more than 85 million estimated impressions, including more than 25 million views of the brand video. The new label will receive further exposure on Hulu’s “The D’Amelio Show,” an upcoming reality show that the streaming service announced just last week.
“We’re extremely excited about the long-term opportunity and view the brand as another growth vehicle,” Horowitz said. “We also believe it will provide a halo for Hollister, offer insights into up-and-coming, teen-oriented trends and help form other social strategies.”
Cash and cash equivalents totaled $0.9 billion as of May 1, up from $0.7 billion a year earlier, but down from the $1.1 billion as of Jan. 30. Inventories declined 9 percent to $389 million.
Net Sales: Abercrombie & Fitch recorded net sales of $781 million in the first quarter ended May 1, a 61 percent increase versus the prior-year period. Compared to two years ago, net sales rose 6 percent.
Digital sales climbed 45 percent year-over-year to $403 million. The increase drove the channel to 52 percent of total sales.
By brand, Hollister and Abercrombie saw similar rates of improvement, with the former up 62 percent to $442 million and the latter up 60 percent to $339 million. The United States, where sales jumped 72 percent to $554 million, led the company by region. Meanwhile, net sales rose 41 percent in Europe, the Middle East and Africa; 42 percent in the Asia-Pacific; and 29 percent in the remaining international regions.
Earnings: Abercrombie & Fitch continued posting some of its best operating income numbers in years in the first quarter. The company pulled in an income of $57 million and $60 million on a reported and adjusted non-GAAP basis, respectively, a marked improvement from the prior-year period’s operating loss of $209 million and $168 million—again on a reported and adjusted non-GAAP basis, respectively.
Per diluted share, net income totaled $0.64 on a reported basis, versus a net loss of $3.90 a year ago. On an adjusted non-GAAP basis, Abercrombie & Fitch recorded net income per diluted share of $0.67, compared to loss of $3.29 in the prior-year period.
According to Lipesky, Abercrombie & Fitch expects second-quarter net sales to land at or above where they were in 2019—$841 million. This projection, he noted, includes the expectations that government-mandated store closures will not increase from current levels and that the company “will continue to successfully manage” ongoing supply chain constraints and labor shortages.
Lipesky did not offer any outlook for the full year, but noted that the company is “planning to make progress recouping Covid-driven sales losses.”
CEO’s Take: “As we think about Q2, we expect to realize benefits from the further lifting of Covid restrictions and, hopefully, a reopening of key countries in Western Europe,” Horowitz said. “Thus far, our momentum has continued quarter-to-date. As more countries and states begin to open, we look forward to further engaging with our global customer base and are cautiously optimistic that we will see a more normal back-to-school, back-to-fall period compared to last year. And while we hope it all goes smoothly, we’re not walking away from this past year’s key learnings and discipline. We will continue to expect the unexpected and we’ll quickly pivot, no matter what may come our way.”