Strong demand for Abercrombie brands boosts holiday quarter sales

Abercrombie & Fitch Co. beat expectations for holiday quarter comparable sales, driven by demand for its Hollister and Abercrombie brands as well as investments in online operations, sending its shares up 14 %

Signage is seen at the Abercrombie & Fitch store on Fifth Avenue in Manhattan, New York City, U.S.A.

To combat years of falling sales, Abercrombie ditched its logo-emblazoned, high-priced clothes and added trendier denim and floral prints.

The company and rivals such as Gap Inc (GPS.N) have also been shutting stores and pouring more money in building their online operations to better compete with Inc (AMZN.O).

As a result, sales at Abercrombie’s direct-to-consumer business rose to about 34 % of total sales, the highest in more than two-years.

“The DTC investments we’ve made early and continue to build on, are paying off, validated by our customers’ high level of mobile engagement,” Chief Operating Officer Joanne Crevoiserat said on an analyst call.

The Abercrombie brand posted a 5 % rise in same-store sales in the quarter, its first increase in five years, beating analysts’ average estimate of 2.13 %, helped by a revamp of its clothing styles and stores.

Gap also reported strong holiday quarter sales last week as shoppers bought more clothing from its major brands, especially Old Navy.

“There’s a little bit of a renaissance in the teen space,” Retail Metrics founder Ken Perkins said.

Same-store sales at Hollister rose, 11 %, the fifth straight quarter of increase. Analysts had expected a 10.35 % rise, according to Thomson Reuters I/B/E/S.

“Hollister has really turned the corner and so to have Abercrombie layer on top of that … is going to make them more profitable,” Perkins said.

The two brands powered a 9 % increase in total comparable store sales, beating expectations.

Abercrombie also forecast same-store sales for fiscal year 2018 to be up low-single digits %age. Analysts are expecting an increase of 1.75 %.

The company also said it expects to close 60 U.S. stores this year, but plans to open 21 full-price stores in fiscal 2018 with half of them in international markets.

Net income attributable to Abercrombie rose 52 % to USD 74.2 million in the fourth quarter ended February 3, 2018 from USD 48.8 million, a year earlier.

Excluding items, Abercrombie earned USD 1.38 per share, and reported a 15 % rise in revenue to USD 1.19 billion.

Analysts on average had expected earnings of USD 1.10 per share and revenue of USD 1.16 billion in the reported quarter.

The company’s shares were up 14 % at USD 24.24, touching a near two-year high at USD 24.52, in late morning trading of March 7, 2018.