Abercrombie & Fitch raises outlook after quarterly sales surge 20%

Abercrombie & Fitch.Courtesy: Abercrombie & Fitch

Abercrombie & Fitch on Tuesday blew past estimates as it posted a 20% jump in sales thanks to a strong back-to-school shopping season and growth at both its namesake brand and Hollister.

The longtime mall retailer, which has bounced back after years of stagnation, also raised its outlook again as it continues to defy an overall slowdown across the apparel industry.

Shares of the company fell more than 5% in premarket trading, however. Through Monday's close, the stock was up 215% on the year.

Here's how Abercrombie did in its fiscal third quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

• Earnings per share: $1.83 vs. $1.18 expected
• Revenue: $1.06 billion vs. $981 million expected

The company's reported net income for the three-month period that ended Oct. 28 was $96.2 million, or $1.83 per share, compared with a loss of $2.21 million, or 4 cents per share, a year earlier.

Sales rose to $1.06 billion from $880 million a year earlier.

For its holiday quarter, Abercrombie expects net sales growth to be up low double-digits compared to the prior year, which is in line with the 11.6% growth analysts had expected, according to LSEG.

It expects its operating margin to be in the range of 12% to 14%, compared to 7.7% in the year ago period and ahead of expectations of 11.3%, according to StreetAccount. The expected uptick is driven by a higher gross profit rate, lower freight costs and higher sales prices.

For the full year, the company expects net sales to grow between 12% to 14%, up from a previous outlook of around 10% and ahead of the 10.8% uptick that analysts had expected, according to LSEG. It's forecasting an operating margin of around 10%, up from its previous range of 8% to 9%, which is what analysts had expected, according to StreetAccount. The expected increase is driven by lower freight and raw material costs.

During the quarter, Abercrombie saw sales at its namesake brand grow by 30% to $548 million and revenue at Hollister grow by 11% to $509 million. Same store sales were up 16% across both brands.

“Our strong third quarter results, with net sales and operating margin well-exceeding our expectations, speak to the power of our playbook working globally across our brand portfolio,” CEO Fran Horowitz said in a news release. “Entering the important holiday season, our fiscal 2023 year-to-date results give us the confidence that we can continue to deliver for our customers and drive profitable growth. As such, we are increasing our full year outlook for both net sales growth and operating margin.”

Abercrombie's stock has soared this year as the company's transformation continues to bear fruit. For years, Abercrombie was known for its branded t-shirts and jeans and shirtless male models, which in turn prompted critics to accuse the company of racism and exclusivity.

In the years since Horowitz took over as the brand's CEO, Abercrombie has transformed itself into an inclusive retailer with a product assortment that continues to resonate with consumers.

Read the full earnings release here.