A&F Posts Strong Quarter, Cites Potential Covid Related Closings

Abercrombie & Fitch, fueled by strong digital sales growth and updated products, reported third quarter net income rose to just over $46 million, compared to $7.5 million in the year-ago period.

Operating income rose to $58.6 million in the three months ended Oct. 31, from $14.5 million in the year-ago period. On an adjusted basis, operating income rose to $65 million in the latest quarter as compared to $25 million in the 2019 quarter.

Third quarter net sales reached $820 million, down 5 percent from last year’s $863.5 million, reflecting the adverse impact of COVID-19 on store sales. However, digital net sales increased 43 percent to $382 million, reflecting robust growth in every month of the quarter.

Hollister sales were $476.7 million last quarter, from $514.8 million in the year-ago period. Abercrombie’s sales fell slightly to $343 million from $349 million.

While the results were good, the company expressed concerns about the possibility of another round of temporary store closures due to spiking cases of COVID-19.

“We are encouraged by quarter-to-date results, including ongoing strong digital demand, with our customers responding favorably to new product and messaging. However, this is tempered by uncertainty regarding the potential for increased COVID-related store restrictions and our expectation for elevated shipping, handling and freight costs,” said Fran Horowitz, chief executive officer.

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“As we approach the peak holiday selling period, inventories remain well-controlled and we have thoughtful plans in place to help us adapt to changing business conditions. As we have done since the start of the pandemic, we will utilize our proven playbooks to remain agile and provide the best omnichannel experience for our customers,” Horowitz added.

The company has recognized a pre-tax gain of $8 million in the current quarter related to flagship store exit activity, primarily due to a gain on lease assignment and updates to previously established accruals for asset retirement and severance obligations related to the four closures.

In addition to the four early exits, the Brussels, Madrid and Fukuoka flagships will close in early January due to natural lease expirations leaving the company with eight operating flagships at year end, down from 15 at the beginning of the year.

 “I am proud of our global teams and partners,” said  Horowitz. “Reflecting your ongoing hard work and perseverance, we delivered our best third quarter operating income in eight years. Results were fueled by 43 percent year-over-year digital sales growth and sequential sales improvements in our global store base. Updated product and marketing resonated with existing and new customers across brands and regions. Combined with a focused inventory management strategy, we expanded gross profit rate significantly while continuing to tightly manage expenses, leading to operating margin improvements over last year.”

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