The Abercrombie & Fitch group reported a sharp increase in sales of the chain that bears the company’s name. Abercrombie’s sales rose 30% in its fiscal third quarter, which ended in late October. This allowed the group to grow by 20% to a turnover of 1,056 million dollars (about 964 million euros at current exchange rates) and a profit of 96 million, compared to losses of 2.2 million in the corresponding period last year. The company has raised its full-year forecasts and now expects growth from 12% to 14%, instead of the 10% previously reported.
It’s the first time in a decade that Abercrombie & Fitch has surpassed $1 billion in third-quarter sales. The gain over this period is also the largest in more than a decade. After a decade of not being without growth or sufficient profitability, the company has now regained the favor of young people. Sales drivers in the third quarter were the USA and America in general, with an increase of 22%. Among chains, Abercrombie is once again the top performer with sales of $548 million, up 30%, while Hollister lags behind with $509 million, up 11%.
Despite the good results, the company’s share price has reacted downwards. Growth will not continue at the same pace and the price has shot up to its highest level since 2011, so investors have decided to take profits. So far this year, Abercrombie & Fitch’s share price has tripled on expectations that the improvement in its balance sheets has been consistent. The increase accelerated in May with first-quarter results.
“Our strong third quarter results, with net sales and operating margin well above our expectations, demonstrate the strength of our strategy, which applies globally across our entire portfolio of brands,” said CEO Fran Horowitz. “Net sales growth of 20% accelerated from the second quarter and was again led by the Abercrombie brands with exceptional 30% growth. “At Hollister Brands, we had a strong back-to-school season with net sales growth of 11% in the quarter as our assortment and brand development resonate with our teen customers,” he added.
It was also a great quarter from a profitability perspective. Better inventory control and good delivery of goods eliminated the need for aggressive discounting, resulting in gross margin improving by 570 basis points (5.7 percentage points), from 59.2% to an excellent 64.9%. The company also improved operating margin to 13.1% in the quarter from just 2% a year ago. The group has raised its forecast for the full year from 8 to 9% to 10%.
In the first nine months of the year, sales rose 13% to $2,827.8 million. The company posted net income of $169.7 million in the period, compared to losses of $35.5 million in the same period last year.
In addition, the good phase will continue in the fourth quarter, the most important of the year, in which the company expects sales growth of just over 10% and an operating margin of 12% to 14%. “As we enter the important holiday season, our results to date for the 2023 financial year give us confidence that we can continue to deliver for our customers and drive profitable growth. “As a result, we are increasing our full-year guidance for both net sales growth and operating margin,” Horowitz, who has been with the company since 2017, told investors and analysts since the firing of his predecessor, Mike Jeffries.
Horowitz’s first goal was to stabilize the company and then transform its operating model with a better commercial and digital approach and greater financial discipline. Even though the company has gone through the crisis in between, it now seems to be heading towards a growth phase. The goal for fiscal 2025 is to achieve revenue of $4.1 billion to $4.3 billion with an operating margin of more than 8%, but in fact the company can achieve this this year.
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