Dive Brief:
- Abercrombie & Fitch on Friday said that first quarter net sales rose 11% to $730.9 million as overall comparable store sales rose 5%. Direct-to-consumer net sales increased 14% to $200.7 million from last year and were approximately 27% of total net sales for the quarter, according to a company press release.
- By banner in the quarter, net sales rose 7% to $307.3 million and comparable sales rose 3% at flagship Abercrombie, with particular strength in North America, while net sales rose 13% to $423.6 million and comparable sales rose 6% at Hollister. By geography, comparable sales in the U.S. rose 8% and were flat overseas.
- The company’s net loss narrowed to $42.5 million in the quarter, down from the loss of $61.7 million last year. Excluding the after-tax effect of certain legal charges, adjusted non-GAAP net loss was $38.4 million, the company said.
Dive Insight:
Last quarter's same-store sales rise was the first positive comp in five years, and with another 5% notch this quarter, Abercrombie & Fitch appears to be out of the doldrums, although its less expensive surf brand, Hollister, continues to outpace its flagship.
The company remains focused on efficiencies and squeezed 460 basis points from operating expenses, as gross margin expanded to 60.5%, up 20 basis points from last year, the company said. In a statement on Friday, CEO Fran Horowitz said the quarter was a strong start to the year, and called out Hollister — a brand she once led — for its particularly good performance and noted that Abercrombie has also built momentum.
But, while ongoing cost-cutting measures and attention to its operating model and its turnaround should continue to stoke further gains, the company is facing intermediate-term pressure, according a note from B. Riley FBR analysts emailed to Retail Dive. Abercrombie in particular is "a brand still in transition (brand/cultural changes typically do not occur quickly)," they wrote, noting that the apparel retailer is grappling with increased competition, margin pressure overseas and potential difficulty in driving traffic.
Key to the cuts are store closures. The company said Friday that it plans to open 22 full-price stores in fiscal 2018, including 13 Hollister and nine Abercrombie stores, and reiterated its previous expectation for 60 U.S. stores closures this year through lease expirations.
Last year, the company opened nine new stores, (six full-price in the U.S. and one overseas plus two outlet stores), and closed 39 stores, primarily in the U.S. This year, the retailer has plans for four new stores using the prototype it runs in select areas and will remodel eight others along those lines. The company has closed over 400 stores since 2010, and last year the company remodeled 35 Hollister stores and seven new A&F prototype stores, which included 16 downsizings of existing stores. And the company closed 39 stores, fewer than the 60 executives expected going into last year.
