Abercrombie & Fitch Co. (NYSE:ANF) has demonstrated impressive resilience in the stock market over the past year, propelled by the sustained popularity of its Abercrombie and Hollister brands. Key factors contributing to its success include reduced shipping expenses, robust Average Unit Retail (AUR) growth, and the company’s strategic initiatives such as store optimization and the “Always Forward” plan.
Abercrombie stock has remarkably surged by 251.2%, significantly outperforming the industry’s modest 4.9% growth during the same period.
The positive momentum is further substantiated by an upward trend in the Zacks Consensus Estimate. Over the last month, consensus estimates for both the current and next fiscal years have surged, increasing by 93.8% and 69.2% to $4.03 and $4.18, respectively.
A Closer Look
Abercrombie & Fitch attributes its success to the sustained strength of the Abercrombie brand and continuous improvements in the Hollister brand. The company has emphasized the effectiveness of its initiatives aimed at elevating the brand positioning of Hollister. Notably, net sales have surged by 8% year over year to $472.6 million at Hollister and by an impressive 26% to $462.7 million at Abercrombie in the second quarter of fiscal 2023.
Strategic investments made in enhancing stores, digital platforms, and technology through the “Always Forward” Plan have yielded favorable results.
In response to the ever-evolving retail landscape, the company has proactively adjusted its strategy by optimizing its store portfolio, adopting omnichannel strategies, and focusing on flagship locations offering a diverse range of products. These measures are aimed at enhancing overall performance and the customer experience.
Notably, Abercrombie recently inaugurated a multi-brand store on New York’s 5th Avenue, featuring collections for men and women, dedicated shop-in-shop spaces for Abercrombie kids, and its adult activewear franchise, YPB (Your Personal Best). In fiscal 2023, Abercrombie intends to open 35 stores, renovate 20, and close 30, demonstrating its ongoing efforts to optimize its store footprint and adapt to changing market dynamics.
Furthermore, in the second quarter of fiscal 2023, the company enjoyed positive margin impacts, benefiting from a 340-basis-point gain due to reduced freight costs and a 400-basis-point boost from AUR growth. These improvements reflect cost savings and efficiency gains in its supply chain and logistics operations.
Looking Ahead
Bolstered by its robust performance, Abercrombie has revised its fiscal 2023 guidance upwards. Management now anticipates year-over-year net sales growth of 10% for fiscal 2023, a notable increase from the previous estimate of 2-4% growth.
Additionally, the company expects an operating margin of 8-9%, surpassing the earlier projected range of 5-6%. This includes a year-over-year increase of 250 basis points, primarily driven by reduced freight and raw material costs, along with a modest operating expense leverage.
Abercrombie remains confident that its sales growth in fiscal 2023 will effectively counterbalance the higher expenses resulting from inflation and increased investments for the “Always Forward” Plan, slated for completion by 2025.
Featured Image: Unsplash @ Taylor Friehl
