Why Did Abercrombie’s Shares Rise Despite Missing Fourth Quarter Consensus Estimates?

Apparel retailer Abercrombie & Fitch (NYSE:ANF) posted its fourth quarter and financial year (ended January 2017) results on March 2, wherein it reported a 7% fall in sales, its 16th straight quarterly sales decline. The company missed consensus estimates on earnings by 4 cents a share, and its revenues by $10 million in the quarter. Despite this, the stock price was up by over 13% on the day, mostly as a result of some improvements seen for Hollister.

See our complete analysis for Abercrombie & Fitch

Improved Performance Of Hollister

Hollister performed well for the company despite a challenging retail environment, which had prompted the company to increase its level of promotions. In particular, the categories of denim, knit tops, and outerwear showed a strong performance. However, for Abercrombie, the brand was not able to overcome the challenges posed by the tough apparel market, which resulted in a slower than expected progress of the brand revitalization plans. The company’s flagship and tourist stores weighed heavily on the results, as a result of the persisting traffic headwinds.

During the year, ANF converted 65 additional Hollister stores into the new prototype format, with positive feedback received regarding the same. Based on the learnings and extensive conversations undertaken by the company with more than 1.5 million customers, Abercrombie developed a new prototype concept for A&F, the first of which was unveiled last month. Furthermore, after a successful rollout of the Hollister Club Cali loyalty program in the US, the company is on track to launch the A&F club loyalty program in the coming weeks.

The direct-to-consumer (DTC) segment delivered growth across both the US, and international markets, fueled by the company’s investments in mobile, omnichannel, and fulfillment. On a total company basis, the DTC business now accounts for 31% of the sales, as compared to 28% last year. The purchase online, and pick up in store initiative was rolled out across the stores in the US and Canada, following a successful rollout in the UK, and this now accounts for 7% of all DTC orders in the combined markets in which it is available.

More Store Closures To Come

In 2017, the company expects to close approximately 60 stores in the US through natural lease expirations. Additionally, with about 50% of the US leases expiring by the end of FY 2018, the company has significant flexibility to strike the right store count balance, and drive efficiency by remodeling or resizing the stores, renegotiating leases, or shuttering down. This closure follows the 53 other shops that were shut in FY 2016, and the many others closed in the years prior. In theory, the company’s comparable sales should show an improvement when the unprofitable stores are closed down. However, in the past at least, such closures have not resulted in an improvement in sales.

Have more questions about Abercrombie & Fitch? See the links below:

• Part 2: Is There A Way Out Of The Rut For Brick And Mortar Stores
• Retailing Conundrum, Part 1: Is There A Way Out Of The Rut For Brick And Mortar Stores?
• Sales Slump Continues For Abercrombie
• Abercrombie Revamps Brand To Attract Customers
• Abercrombie & Fitch’s Direct Business Is Its Only Beacon Of Hope

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