Dive Brief:
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Abercrombie & Fitch Co. posted the best Q1 in its history, reporting that net sales rose 22.1% year over year to just over $1 billion, with comps up 21%. Stores and e-commerce both saw double-digit growth, Chief Financial Officer Scott Lipesky told analysts Wednesday.
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By brand, Abercrombie net sales rose 31.1% to $571.5 million, with comps up 29%. Hollister (including the Gilly Hicks brand) rose 12.3% to $449.2 million, with comps up 13%.
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Net income soared more than sixfold to $115.1 million, per a company press release. Gross margin expanded by 540 basis points to 66.4%.
Dive Insight:
In the first three months of the year, Abercrombie & Fitch & Co. not only reached its own revenue milestone, but also handily outpaced the wider apparel market. The company expanded its market share “substantially,” according to GlobalData research.
“Over the first quarter, overall U.S. consumer spending on apparel was reasonable but volumes remained under pressure and our data showed consumers were shopping around more,” GlobalData Managing Director Neil Saunders said in a client note. “Abercrombie & Fitch has bucked these trends and thanks to strong assortments, good marketing, and an excellent customer experience it has secured the loyalty and spending of its core customers as well as attracting new ones.”
This momentum is reflected in a guidance upgrade, also released Wednesday. The company now estimates that full-year net sales will rise about 10% year over year, up from its previous estimate of between 4% to 6%. Operating margin is expected to reach about 14%, up from around 12%, “driven by a higher gross profit rate and some operating expense leverage,” per its press release.
The company said that it expects “Abercrombie brands will continue to outperform Hollister brands and the Americas will continue to lead the regional performance.” Notably, Q1 net sales in the company’s international operations (Europe, the Middle East and Africa, and the Asia-Pacific region) also rose double digits.
How long can Abercrombie stay on this trajectory? The company surpassed its 2025 sales and operating goals in 2023, but its longer term goals — $5 billion in sales and a 10% operating margin — could be more of a stretch.
“Sales should inevitably start finding some level further into this year against harder comparisons,” William Blair analysts led by Dylan Carden said in a Wednesday client note, adding that “the biggest risk is simply one of visibility as to how long the company can sustain its current momentum.”
One way to stoke growth is via brand extensions, CEO Fran Horowitz told analysts, touting the recent launch of the “A&F Wedding Shop,” which serves both men and women. That effort arose from learning from customers that nuptials are now often multiday affairs requiring several outfits, she said.
“I mean, that is what we do. The team is busy and hard at work, always listening to the customer or trying to see what opportunities are out there,” she said. “So we're going to continue to stay focused on listening to them and hearing what the opportunities are and there will certainly be new things as we move ahead.”
