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Abercrombie Sees US Consumers Returning at Quicker Pace Than in China

Abercrombie & Fitch Co.’s strong digital sales helped the company keep inventory flowing as stores closed amid the pandemic, and social media helped it keep customers engaged.

In a Nutshell: CEO Fran Horowitz said during a company conference call following the company’s first quarter results release Thursday, that it’s taking key learnings from its business in China, which was first hit by COVID-19. The company made early moves to have U.S.-based staff working from home and to close stores temporarily, turning its focus, as most brands did, to e-commerce. Abercrombie’s efforts to optimize square footage in stores in recent years, plus investments in omnichannel, also helped it navigate the crisis, Horowitz said.

For the 409 stores that have already reopened–285 in the U.S., 79 in Europe, Middle East and Africa, and 40 in Asia Pacific–Horowitz said the company has seen steady improvement, similar to trends it saw in China, which was earlier in the opening cycle. “We are encouraged by recent results. The customer is returning at a quicker pace than in China,” Horowitz said. The balance of the company’s namesake and Hollister stores are expected to reopen by the end of June.

As the company was fully bought on inventory for the first quarter and the start of the second, Horowitz said Abercrombie moved to reduce certain orders not already in production, and either delayed or shifted the cadence of future deliveries. And while it would prefer to sell excess inventory now to bring in new styles next year, some items like basic shorts have been packaged and put away for next year. The team also worked with all vendors to renegotiate payment terms and extensions.

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Because of the unpredictable nature of the current situation, the company plans to stay flexible on promotions, according to Horowitz. While there’s no roadmap, the CEO said “crises have a way of accelerating change…The customer remains highly social and highly engaged. We are confident we are well positioned to not only survive, but to thrive.”

Net Sales: Total net sales for the quarter ended May 2 fell 33.9 percent to $485.4 million from $734 million.

By brand, sales at the company’s core Abercrombie brand were down 30 percent to $212.3 million, while its younger sibling Hollister Co. saw sales fall 36 percent to $273 million.

By region, sales in the U.S. were down 31 percent to $322.9 million; EMEA was down 35 percent to $112.7 million; and in Asia Pacific, sales were down 51 percent to $32.3 million.

The Hollister customer gravitated toward loungewear and fleece, while its intimates concept Gilly Hicks saw strong digital growth. The Gilly Hicks concept launched an active collection in the second week of April, and Horowitz said it was so successful that the company needed to pull forward some future deliveries to meet demand. At Abercrombie, soft and cozy resonated with customers, while sales for women’s categories continued to outperform men’s. Women’s also saw several categories with positive comps, such as knit tops, jeans and skirts.

Earnings: The net loss for the quarter widened to $244.1 million, or $3.90 a diluted share, from a net loss of $19.2 million, or 29 cents, a year ago.

The company said it has seen, and may continue to see, material adverse impacts from COVID-19. Due to uncertainty involving duration of the pandemic and impact on overall customer demand, Abercrombie said it would not provide a detailed outlook for the second quarter or full year Fiscal 2020.

CEO’s Take: “Today, roughly half of our global store base is open, With stores reopening in the U.S. and the EMEA regions, we have experienced sales productivity for reopened stores of approximately 80 percent and 60 percent, respectively, as compared to last year’s levels,” Horowitz said. “We look forward to continuing to serve our customers across channels, and we remain committed to, and confident in, our long-term vision including the global opportunities available to us.”