Abercrombie & Fitch The company said on Wednesday its holiday quarter sales surged 21% and profits rose on higher prices and lower raw material costs.
The apparel retailer expects its growth story to continue as it issued better-than-expected sales guidance.
Here’s how Abercrombie performed in its fiscal fourth quarter compared to Wall Street expectations, according to a survey of analysts by LSEG (formerly Refinitiv):
- Earnings per share: $2.97, $2.83 expected
- Revenue: $1.45 billion, $1.43 billion expected
The company reported net income of $158.4 million, or $2.97 per share, for the three months ended February 3, compared with $38.33 million, or 75 cents per share, in the same period last year.
Sales increased to US$1.45 billion, an increase of approximately 21% from US$1.2 billion in the same period last year.
Abercrombie expects sales to grow by a low double-digit percentage this quarter, compared with forecast growth of 7.2%, according to LSEG. According to LSEG, its full-year sales are expected to rise 4% to 6%, compared with expectations of 4%.
Chief Financial Officer and Chief Operating Officer Scott Lipesky said on a conference call with analysts that he expects growth to slow in the second half compared with the first half.
“While we expect growth in both the first and second half of the year, we expect growth to be higher in the first half due in part to a calendar change in Week 53 of the fiscal 2023 calendar,” Lipesky said. “We expect full-year operating margin to be approximately 12%.”
This quarter, comparable sales grew by 16%, and gross profit margin was 62.9%, 7.2 percentage points higher than the same period last year. Higher average selling prices coupled with lower freight and raw material costs boosted profits. Analysts had expected Abercrombie’s gross profit margin to be 60.1%, according to StreetAccount.
Lipesky noted that cotton costs this season are “relatively consistent” with 2022 levels. Looking ahead, he expects lower input costs to provide a “modest” improvement to its gross margin, but any ongoing benefits from lower freight costs are expected to be offset by supply chain hurdles in the Red Sea.
“This is mainly an impact on the European market for us. A lot of shipments go through that region. Our teams are always reading, reacting, changing patterns, and being there, at the right time, whenever they need to Get the product shipped here. Best price,” Lipeski said.
“Obviously, we’ve seen – you’ve seen this, you’ve seen freight rates go up around the world as this has happened, but it’s slightly different on each route,” he added. “So we’re seeing some friction on the transportation cost side. It’s going to be more of a back half thing in the second quarter as higher transportation costs start to flow in.”
Chief Executive Fran Horowitz said the company’s strong fourth-quarter performance was driven by growth “across geographies and brands.”
“Net sales for the Abercrombie brand increased 35%, continuing an impressive multi-quarter growth trend, while the Hollister brand grew 9%, achieving its third consecutive quarter of sales growth,” Horowitz said.
She continued: “By staying close to customers, maintaining tight inventory control and continuing to exercise financial discipline, our team improved fourth quarter operating margin by 800 basis points year over year to 15.3%.”
The Hollister brand, which includes Hollister and Gilly Hicks, grew 6% for the full year, compared with a 9% decline a year earlier.
“While we see growth in both channels, physical stores are outperforming digital, with approximately 70% of Hollister sales occurring in physical stores by 2023,” Horowitz said. “Teen consumers gravitate digitally They start their journey online, but more often than not end in a physical store.”
Gilly Hicks is shifting its product category from lingerie and loungewear to a more active lifestyle brand. Horowitz said the company still views Gilly Hicks as a “key growth category” for the overall business, but plans to prioritize Abercrombie and Hollister in the short term because those brands deliver higher returns. That meant placing Gilly Hicks under the Hollister umbrella (which the company had been doing for some time) and closing most of its stores.
Horowitz said that in the coming year, the company will focus on expanding its global customer base and further achieving its long-term goal of global annual sales of US$5 billion. In fiscal year 2023, Abercrombie is close to this goal, with full-year revenue reaching $4.28 billion.
Once known for its heavily perfumed mall stores and shirtless models, Abercrombie has transformed into an inclusive lifestyle brand, swapping its screaming logo for quiet, sophisticated style for every occasion and age. .
With Horowitz at the helm, Abercrombie has redefined itself to the masses, harnessing the power of social media marketing and an army of influencers to win over a new generation of customers and re-engage the millennials who grew up with the brand.
Wall Street is delighted with the transformation that really took off last year. At the beginning of 2023, the stock price was about $23 per share, and by the end of the year, the stock price soared nearly 283% to $88.
Year to date, its shares are up about 59% as of Tuesday’s close.
As Abercrombie prepares to face tougher comparisons to last year in future seasons, it remains optimistic.
In early January, Abercrombie raised its fourth-quarter and full-year forecasts due to better-than-expected holiday sales. The company said it expects fourth-quarter net sales to grow about 15% and operating margins to reach about 15%, compared with previous expectations of low double-digit sales growth and profit margins of 12% to 12%. 14%.
At the time, Horowitz said Abercrombie & Fitch’s women’s business was expected to post its highest sales ever in the fourth quarter. Revenue from the menswear business, which has been the company’s growth driver, also rose, she added. Horowitz added that the company’s Hollister brand is expected to achieve higher margins as it focuses on better merchandising and inventory management.
As investors look beyond the holiday season into spring and summer, they will be watching to see whether Abercrombie can continue to grow as consumers become increasingly cautious, especially when it comes to purchasing discretionary items like clothing.
Read the full earnings report here.
Correction: Abercrombie’s fiscal fourth quarter ended on February 3. An earlier version incorrectly stated this date.
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