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Abercrombie (ANF) Thrives on Digital Sales & Store Initiatives

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Abercrombie & Fitch Company (ANF - Free Report) appears to be in a strong position, given its effective growth initiatives, including store and cost-optimization plans, and strong digital and omni-channel sales growth. The benefits of the traits were visible in the company’s recently updated fourth-quarter fiscal 2020 view, which included the impacts of the trends witnessed during the holiday season.

Notably, strength in online sales, driven by enhanced omni-channel capabilities — including curbside and ship from store services, improved traffic across websites and apps, and higher conversion and new customer acquisition — acted as key growth drivers in the fiscal fourth quarter. On the flip side, in-store sales remained weak due to limited store hours, restrictions on store capacity and store closures in some parts of EMEA and North America. Driven by these, management provided an encouraging view for fourth-quarter fiscal 2020.

The company now anticipates a net sales decline of 5-7%, which reflects an improvement from a decline of 5-10% mentioned earlier. Moreover, gross margin is envisioned to expand at least 130 basis points, driven by lower promotions and higher markdowns. Prior to this, gross margin was expected to be flat to up slightly.

Stellar Digital & Omni-Channel Performance

Abercrombie has been making significant progress in expanding digital and omni-channel capabilities to better engage with consumers.  The company witnessed a strong online show amid the coronavirus pandemic, which is reflected in the recent quarterly performances. Digital net sales rose 43% year over year to $382 million in the fiscal third quarter. Markedly, digital sales reflected robust growth in every month of the quarter. Improved traffic across the company’s websites and apps along with higher conversion and customer acquisitions was the primary driver to the upside.

Undoubtedly, the company remains encouraged with its strong online presence and expects to keep gaining from the online platform. It also plans to make continued investments toward bolstering omni-channel capabilities — including curbside and ship from store services. It is also striving to optimize capacity at its distribution centers to meet the increased digital demand.

Store & Cost Optimization Efforts

Apart from a strong online show, Abercrombie is working toward rationalizing its store base by reducing dependence on underperforming tourist-driven locations. As part of its store-optimization plans, the company plans to reposition larger-format flagship locations to smaller omni-channel-enabled stores. Progressing on the efforts, Abercrombie plans to close four European flagship locations before their natural lease expirations.

Additionally, we note that the company has been adjusting its store-reopening strategies from time to time so as to ensure compliance with government regulatory measures as well as ensure the safety of employees and customers. In the fiscal third quarter, the company had 97% of its global store base open. These stores operated with reduced working hours and at approximately 75% productivity.

Abercrombie has also been on track with its cost-minimization measures. In fact, prudent expense-management strategies aided the company’s performance in the third quarter of fiscal 2020. Notably, it remains focused on better managing its inventories and expenses in a bid to stay afloat amid the tough economic environment. Its prudent expense-management strategies like occupancy cost reduction through store closures and right-sizing are expected to have aided fiscal fourth-quarter results.

Bottom Line

Abercrombie remains one of the key contenders in the specialty retail space, offering premium, high-quality casual apparel for men, women and kids. The company’s cost-management and digital-expansion efforts position it well for continued growth in the near future.



We note that shares of this Zacks Rank #1 (Strong Buy) company have advanced 27.3% year to date compared with the industry’s rally of 20.8%.

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