Abercrombie & Fitch Co., showing strength across brands and geographies, moved into the black during the second quarter and raised its outlook for the year.
On Wednesday, the retailer reported net income of $58.71 million, or $1.10 a diluted share for the quarter ended July 29, compared to a net loss of $16.83 million or $0.33 a diluted share, in the year-ago period
Operating income came to $90 million, compared to an operating loss of $2 million
Sales rose 16 percent to $935.35 million from $805 million, with gains seen across all regions. Comparable sales rose 13 percent.
The results and the boosted outlook won over Wall Street, which lifted the stock 15 percent to $47.50 in pre-market trading Wednesday.
“Our net sales and operating margin exceeded our expectations as global growth accelerated throughout the second quarter,” said Fran Horowitz, chief executive officer, in a statement Wednesday. “We continue to see strong customer receptivity of our brands and product, led by 26 percent net sales growth in Abercrombie brands. To date, our efforts to evolve Hollister brands’ positioning and assortment are paying off, achieving a return to net sales growth at positive 8 percent for the quarter. Both brands saw gross profit rate improvement on higher average unit retail and lower freight costs. Operating leverage from sales growth and gross profit rate performance contributed to an operating margin of 9.6 percent, a significant expansion from second quarter of 2022.
“These strong results showcase the power of our playbook and our team’s ability to align product, voice, and experience to meet our customers’ needs. Operationally, we are strategically managing inventory, leveraging chase capabilities to support demand, and driving efficiency across our business.
“While the macro environment remains dynamic, our first half results give us confidence to stay on offense for the second half,” Horowitz added. “Consistent with our Always Forward Plan, we are continuing to open stores and make critical long-term investments in digital and technology that will keep our brands in position to exceed our customers’ expectations.”
Gross profit rate of 62.5 percent was up about 460 basis points compared to last year. The year-over-year improvement was primarily driven by a benefit of 400 basis points from year-over-year AUR (average unit retail price) growth and 340 basis points from lower freight costs, partially offset by 180 basis points from higher cotton and raw material costs and 60 basis points from the adverse impact from foreign currency.
Raising its outlook, the company now expects net sales growth of around 10 percent from $3.7 billion in 2022. This is an increase to the previous outlook of up 2 to 4 percent. “The current outlook assumes that Abercrombie brands will continue to outperform Hollister brands,” the company indicated. Also, fiscal 2023 includes a 53rd week for reporting purposes, along with net store expansion. The 53rd week is estimated to add about $45 million to total net sales in the fourth quarter and full year of 2023.
The operating margin is now projected to be in the range of 8 to 9 percent. This range improves from the previous outlook of 5 to 6 percent.