Abercrombie & Fitch Posts Another Solid Quarter

Abercrombie & Fitch Co. continued its winning ways by posting solid third-quarter results beating its expectations.

For the third quarter ended Oct. 28, the youth specialty retailer reported net income of $96.2 million, or $1.83 per share on a reported basis as compared to net loss per diluted share last year of 4 cents and net income per diluted share of 1 cent on a reported and adjusted non-GAAP basis, respectively.

Net sales reached $1.1 billion, up 20 percent as compared to last year on a reported basis and up 19 percent on a constant currency basis. Total company comparable sales were up 16 percent.

The results sparked a 6.6 percent or $4.79 spike in the stock price to $69.94 in pre-market trading around 8:15 a.m. Tuesday.

“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,” Fran Horowitz, A&F’s chief executive officer said in a statement. “Net sales growth of 20 percent accelerated from the second quarter and was once again led by Abercrombie brands with exceptional growth of 30 percent. At Hollister brands, we had a solid back-to-school season, delivering 11 percent net sales growth for the quarter as our assortment and brand evolution is resonating with our teen customer. With strong product acceptance and tightly-controlled inventories across brands, we delivered gross profit rate expansion of 570 basis points to last year in addition to global sales growth. Operationally, we made investments in technology, marketing and our people while delivering strong year-over-year operating leverage resulting in an operating margin of 13.1 percent for the quarter.

“Entering the important holiday season,” Horowitz added, “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.”

For the full year, A&F now expects net sales growth of 12 to 14 percent from $3.7 billion in 2022, compared to the previous outlook of growth of around 10 percent. Also, fiscal 2023 includes a 53rd week for reporting purposes, along with net store expansion. The 53rd week is estimated to add approximately $45 million to total net sales in the fourth quarter and full year of 2023.

Operating margin is now seen around 10 percent compared to the previous outlook in the range of 8 to 9 percent. The current outlook includes a benefit of around 250 basis points from full year 2022 levels on expected net improvement in freight and raw material costs, and modest operating expense leverage with sales growth expected to more than offset higher expenses.

For the fourth quarter, net sales growth is seen up low double-digits compared to fiscal fourth quarter 2022 level of $1.2 billion. Included in this outlook is the expected benefit of approximately 375 basis points from the 53rd financial reporting week.

Operating margin is seen in the in the range of 12 to 14 percent compared to an adjusted operating margin of 7.7 percent in Q4 2022. “We expect the year-over-year improvement to be driven by a higher gross profit rate on lower freight costs and higher AURs,” the company indicated.

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