Abercrombie & Fitch Co. (ANF) saw its shares rise over 14% on the back of impressive first-quarter fiscal 2023 results that exceeded the Zacks Consensus Estimate, recording an improvement YoY for both the bottom and top lines. Abercrombie succeeded, despite significant inflation and global macroeconomic disruption, due to continued momentum in its core brands Abercrombie and Hollister, with initial improvements in the latter. The retailer’s drive to improve its inventory across all labels to attract customers to shop for a more diverse range of products helped in yielding positive results.
Furthermore, strategic investments in stores, digital, and technology through its Always Forward Plan have been effective in enhancing profitability and growth. As a result, management raised its fiscal 2023 view.
Sales and Earnings Figures
Abercrombie’s adjusted earnings per share in Q1 were 39 cents, outperforming the Zacks Consensus Estimate of a loss of 2 cents. Q1 earnings rose significantly YoY from 27 cents to 44.4%.
Moreover, net sales of $836 million, up 3% YoY, surpassed the Zacks Consensus Estimate of $812 million, with net sales growing 4% on a constant-currency basis.
Sales by Region and Brands
The report shows sales predominance for the United States in Q1, where sales increased YoY by 9% to $636.1 million. International sales fell by 12% YoY to $199.9 million. The EMEA reported an overall sales drop of 15% to $139.3 million. Nevertheless, APAC sales grew YoY by 11% to $33.3 million. Other sales slumped by 19%, with $27.3 million.
Brandwise, net sales at Hollister fell 7% YoY to $400 million, while for Abercrombie, sales increased by 14% to $436 million. Our initial estimates of Hollister and Abercrombie sales were $406 million and $407.4 million, respectively.
Over 570 basis points of gross margin expansion were recorded, mainly attributed to a 760 basis point reduction in freight costs and 230 basis point increase in AUR growth. These were slightly offset by 320 basis points from higher cotton and raw material costs and 100 basis points from adverse currency.
Moreover, operating expenses across stores, digital, and technology increased by a modest 3% YoY. Higher technology expenses and Incentive-Based Compensation were more than offset by lower digital marketing and fulfillment expenses. As a percentage of sales, operating expenses stood at 57.3%, expanding by 30 basis points from 57% in Q1 of the previous year.
At the end of Q1 2023, Abercrombie had cash and cash equivalents of $447 million, long-term net borrowings of $297.2 million, and stockholders’ equity of $702 million. Additionally, the company had liquidity of $758 million, cash, and equivalents with borrowing available under the ABL Facility.
Furthermore, Abercrombie opened six stores in Q1, including three Hollister and Abercrombie stores each, while at the same time closing seven Hollister and three Abercrombie stores, bringing the total number of stores to 758, including 556 stores in the US and 202 internationally as of 29 April 2023.
In FY 2023, Abercrombie expects sales growth in the range of 2-4% YoY, up from the prior guidance of 1 to 3% growth, with Abercrombie expected to outperform Hollister and the United States outperforming International based on region-wise sales. Additionally, the fiscal year includes a 53rd week, which may benefit