Abercrombie & Fitch raised its annual sales forecast on Wednesday after its second-quarter results comfortably beat estimates on strong demand for latest fashion styles at its Abercrombie label and improved assortment at Hollister.
Shares of the Ohio-based company jumped 15% in premarket trading.
Abercrombie has been filling its shelves with a fresh collection of styles, including dressy apparel and cargo pants, while also capitalizing on the demand for new denim silhouettes, as jeans become a post-pandemic workwear wardrobe staple.
The company’s tight control over its inventories, which were down 30% at the quarter end, enabled it to cut back on discounts and markdowns, a move that helped its gross profit margin expand by 460 basis points to 62.5%.
Abercrombie’s upbeat forecast bucks a gloomy retail tone set by companies in recent weeks, with department store chains Macy’s and Kohl’s both leaving their annual forecasts unchanged despite quarterly profit beats as consumer spending remains pressured in the U.S.
“A lot of retailers are keeping their outlook conservative…but Abercrombie has incredible momentum (now) as their turnaround plan has helped in winning customers back, enabling them to outperform broader retail,” said Insider Intelligence analyst Rachel Wolff.
“They’ve been able to keep up with the consumer as they change, lean into trends and have the ability to chase demand instead of taking promotions,” Wolff added.
The company’s revenue from the Abercrombie brand rose 26% in the quarter, while that from Hollister recorded its first growth, with an 8% rise, following a decline in the past five quarters.
Abercrombie now expects fiscal 2023 net sales to rise around 10%, compared with its prior forecast range of 2% to 4% growth.
Its per-share profit of $1.10, for the three months ended July 29, crushed estimates of 17 cents, according to Refinitiv IBES data. (Reporting by Deborah Sophia in Bengaluru; Editing by Shweta Agarwal)
