Even as Stores Close, Abercrombie & Fitch Shares Are Up

It has been a very tough year for retailers, particularly the brick-and-mortar apparel stores.  Even big-box stores like Sears—who has been an industry stalwart for decades—has been forced to close stores and restructure their strategy in order to continue operating in today’s market. Obviously, the consumer exodus to digital formats—and improvements in shipping options—has helped to shift the industry’s momentum, but consumers also appear to be shifting interest away from high-end luxury items to spend their money on specialty brands.  

This strange dichotomy helps to explain how a company like Abercrombie & Fitch can have a plan to close more than three dozen stores by this time next year while still posting solid growth numbers and rising share price. 

First of all, the bad news:  Abercrombie & Fitch appears to have joined the likes of other high-end retailers—including the Gap and Victoria’s Secret—in the most recent round of store closures.  This would be just the most recent set of closures after shuttering 475 stores—including Hollister brand, which the company also owns—over the last eight years. Last year, Abercrombie & Fitch closed only 29 stores. 

However, the store closure strategy appears to be working for the specialty teen brand.  This week, the company says they beat analyst estimates on the heels of strong same-store sales, and that helped bump share value up about 20 percent.  In fact, the company’s fiscal fourth quarter ended on February 2, closing out the fiscal year up $1.35 per share.  

According to CEO Fran Horowitz “We ended 2018 on a strong note, recording our sixth consecutive quarter and second consecutive full year of positive comparable sales while exceeding $1 billion in annual digital sales.”

Actually, Abercrombie & Fitch said comparable sales grew 3 percent during the holiday quarter, a key season.  This bump, however, came after a near 10 percent jump from the year prior, even as sales were down overall, by 3 percent.  

Horowitz goes on to say, “Most importantly, while delivering on the topline, we drove gross profit rate improvement and operating expense leverage resulting in 100 basis points of adjusted EBIT margin expansion and a 77 percent improvement in adjusted net income for the full year.”

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