Abercrombie & Fitch reported its strongest first quarter in its history on Wednesday, continuing a winning streak that again exceeded expectations.
The retailer’s sales jumped 22% compared with last year, while profits were nearly seven times higher and came in well ahead of Wall Street’s estimates.
Abercrombie’s shares closed more than 24% higher Wednesday.
Here’s how the apparel company did in its fiscal first quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
Earnings per share: $2.14 vs. $1.74 expected
Revenue: $1.02 billion vs. $963.3 million expected
The company’s reported net income for the three-month period that ended May 4 was $113.9 million, or $2.14 per share, compared with $16.6 million, or 32 cents a share, a year earlier.
Sales rose to $1.02 billion, up about 22% from $836 million a year earlier.
“We successfully navigated seasonal transitions with relevant assortments and compelling marketing, leveraging agile chase capabilities and inventory discipline, driving sales above our expectations,” CEO Fran Horowitz said in a news release. “Growth was broad-based across regions and brands with Abercrombie brands registering 31% growth and Hollister brands delivering growth of 12%.”
Abercrombie has been one of the biggest winners in retail. As it stares down a tough year of comparisons, the company is building on the double-digit sales growth it saw in 2023.
The retailer’s comparable sales grew 21%, on top of the 3% growth it saw in the year-ago period. Abercrombie is expecting sales to rise again in the current fiscal year, and increased its revenue guidance.
For the full year, the retailer now expects sales to grow about 10%, compared with a previous outlook of between 4% and 6%. Analysts had expected growth of about 7%, according to LSEG.
For the current quarter, Abercrombie anticipates sales will increase by a mid-teens percentage, ahead of estimates of up 9%, according to LSEG.
Horowitz plans to build on the company’s success by developing its Hollister brand, which accounts for about half of the company’s overall sales, and bringing more categories to its namesake banner. In March the retailer debuted the “A&F Wedding Shop” – a collection of apparel for brides and attendees that can be used not only for the day of but also for other wedding parties, like bachelorette festivities and rehearsals.
Pieces in the collection, which include a range of dresses, bikinis, pajamas, skirts and other items, range between $80 and $150. The mid-tier price point for a day that’s typically very costly for many couples gives Abercrombie an in with the value-seeking consumer and a foothold in the overall bridal wear market, which is expected to reach $83.5 billion in the U.S. by 2030, according to ResearchAndMarkets.com.
During the quarter, the wedding shop “clearly exceeded” the company’s expectations, said Horowitz.
“And the wedding season hasn’t even technically started yet, right?” said Horowitz. “We got out ahead of that and got that in early.”
When it comes to Hollister, the company is seeing progress with both women’s and men’s items. In the same period last year, sales were down 7% at the banner, but this year, they were up 12%.
“The men’s division returned to growth led by fleece tops and bottoms as well as pants, which all did well throughout the quarter. Women’s contributed nicely to the growth acceleration with balance across categories,” said Horowitz. “We saw improved traffic trends across both stores and digital channels, which helped show teen customers the changes we have made to the assortment. Importantly, the Hollister team continue to seek opportunities to reduce discounts and promotions while tightly managing inventory levels, further supporting [average unit retail] and gross profit rate expansion in the quarter.”
The company is also looking at its international markets as another growth channel. During the quarter, sales in Europe, the Middle East and Africa were up 19%, led by the U.K. and Germany. In the Asia Pacific region, sales were up 10%, led by China.
“Our teams continue to localize our assortments and operations, and we’ve made strategic investments in marketing to drive brand awareness in these two key EMEA markets,” Horowitz said of the U.K. and Germany on a call with analysts. “We saw great digital engagement conversion from new marketing campaigns along with the benefit of new store experiences, particularly in Greater London.”
Horowitz said the company believes there’s “more runway ahead in both regions,” and the strong quarter is more proof that the “playbook is working.”
Over the last six years, Abercrombie has been working to transform itself from an exclusionary retailer that used loud branding and shirtless models to drive sales into a company that’s focused on inclusivity and geared toward working millennials.
Beyond changing its product assortment and overhauling its stores, another crucial aspect of Abercrombie’s success has been its marketing engine, and how it has relied on influencers and affiliates to communicate its rebrand and market its styles.
In an interview with CNBC, CEO Horowitz said Abercrombie’s affiliates and influencers continue to be a “very big part of our business” and its marketing strategy going forward.
“That user-generated content that they create is something that really resonates with our consumer,” said Horowitz.
“People count on and believe their friends and their peers more than they believe on what a company is telling you, and we’ve learned that through the ages,” she said.
Consumers surveyed in EY’s Future Consumer Index, which includes insights from more than 23,000 consumers in 30 countries, echoed that perspective.
The survey found that the majority of respondents, 74%, find influencer product recommendations trustworthy, while 61% said they bought a product solely based on an influencer’s recommendation or promotion.
Abercrombie’s transformation is years in the making, but began to bear fruit in 2023 when the retailer posted a 16% annual sales gain at the same time the U.S. apparel market shrunk. Its stock surged 285% in 2023 and is up another 73% so far this year as of Tuesday’s close, outpacing the S&P 500′s gains of 11%.
