Riding Momentum, Abercrombie & Fitch Co. Swings into Profitability

Abercrombie & Fitch Co., capitalizing on digital growth, tight inventory control and products that resonated well with customers, reported first-quarter net income of $41.77 million compared to a loss of $244.15 million in the year-ago period.

Operating income for the three months ended May 1 reached $57 million and $60 million on a reported and adjusted non-GAAP basis, respectively. That compared to an operating loss of $209 million and $166 million last year, on a reported and adjusted non-GAAP basis, respectively.

Net sales last quarter totaled $781 million, up 61 percent compared to last year’s period and up 6 percent as compared to pre-COVID 2019 first-quarter sales.

Digital sales increased 45 percent to $403 million, reflecting robust growth in every month of the quarter, the company said. Digital sales represented 52 percent of total sales.

The gross profit rate improved 900 basis points to 63.4 percent driven by higher average unit retail on lower promotions.

Fran Horowitz, chief executive officer, said that “2021 is off to a strong start. We built on the significant progress we made in 2020, registering our best first quarter operating income since 2008. The first quarter is evidence that our shift to a digitally-led global business model is working…We remained focused on funding key investments in customer-facing initiatives and delivered significant first quarter operating leverage.”

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Horowitz also said that sales growth was achieved despite the reduction of 1.3 million gross square feet of store space, or 20 percent, compared to the first quarter of 2019.

Retailers in the U.S. have been reporting momentum in the first quarter of this year due to the rollout of COVID-19 vaccinations and decline in COVID cases, some pent up demand, and people starting to go out more.

“Momentum has continued into the second quarter across brands, and early reaction to our newest member of the A&F Co. family, Social Tourist, has been amazing,” Horowitz said. The Social Tourist brand was launched earlier this month by the Hollister division in collaboration with social media personalities Dixie and Charli D’Amelio.

By division, Hollister sales rose 62 percent to $442.4 million in the quarter from $273 million in the year-ago period. Abercrombie sales rose 60 percent to $339 million from $212.35 million in the year-ago period.

“Our solid foundation and strong liquidity position enables us to be on the offense,” Horowitz said. “We remain focused on profitable topline growth, our ongoing digital evolution and our growth vehicles, including Gilly Hicks, and are committed to thoughtful expense management and global square footage optimization. Although the global landscape remains uncertain, I am excited about the future and more confident than ever in our ability to drive sustainable, long-term operating margin expansion.”

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