Abercrombie & Fitch beats estimates, stock up 5%

Casual wear retailer Abercrombie & Fitch (ANF) reported a beat on its earnings and revenue estimates for the first quarter of this year. The stock continued its momentum of the year-long upward trend, jumping more than 5% in the premarket on the positive first-quarter results.

The New Albany, Ohio-based retailer gained 11% year-over-year on its sales for the quarter to $730.9 million, driven by comparable sales increases and gains from foreign exchange. Loss for the quarter also narrowed by 31% to $42.5 million, while on a per share basis, diluted loss came in at $0.62, down from $0.91 a year ago.  On an adjusted basis, the company reported net loss per share of $0.56.

“Results exceeded our expectations driven by a 5% increase in comparable sales, gross margin expansion, and 460 basis points of expense leverage. Hollister continued to drive strong sales growth across channels and geographies and Abercrombie built momentum with another quarter of positive comparable sales led by strength in North America,” said Fran Horowitz, CEO.

On a brand basis, Hollister net sales, which contributed about 58% to the company’s total sales, jumped 13%, while Abercrombie, which includes Abercrombie & Fitch and Abercrombie kids brands, gained 7% for the quarter.

Total comparable sales increased 5% for the quarter with Hollister comp sales increasing 6% by brand and 8% by geography. For Abercrombie, comp sales increased 3% by brand while it remained flat on a geographic basis. By geography, international posted higher growth for Abercrombie & Fitch, increasing 12%, with US sales rising 10%.

Abercrombie has been taking initiatives to increase its social media presence, which has been bearing fruit and in turn reflecting in its results.

Direct-to-consumer sales contributed to 27% of total net sales for the first quarter. The company has been investing heavily during the past five years in the direct-to-consumer segment, which is showing improved growth in the segment. To have a larger reach to its customers, Abercrombie has been taking initiatives to increase its social media presence, which has been bearing fruit and in turn reflecting in its results.

Going forward, the company anticipates net sales to increase in the range of 2% to 4% for fiscal 2018, while for the second quarter, it is expected to be up high-single digits. As guided in the previous quarter, comparable sales are expected to be up in the 2% to 4% range.

On the stores front, the company plans to open 22 full-price stores in fiscal 2018, including 13 Hollister and nine Abercrombie stores. Additionally, the company anticipates closing up to 60 stores in the US during the fiscal year through natural lease expirations. Abercrombie took steps to reduce its store count in the past in the US, with stores having lower footprints, unified with technology. The company expects to increase store productivity with better store experience.