Abercrombie & Fitch results shows brand on ‘road to recovery’
Abercrombie & Fitch is on the right road to recovery.
Third-quarter net income is up by 133 per cent year on year, supported by a 75 per cent increase in operating profit. The company has still delivered positive comparables both overall and for each of the Hollister and Abercrombie brands. And at 6 per cent growth, US comparables are still on fairly solid ground.
While Abercrombie & Fitch’s sales growth has slowed, both overall and on a comparable basis, and total sales at the Abercrombie brand have slipped into negative territory, a calendar shift in reporting periods, currency fluctuations and some tough-to-match prior year comparable figures are mitigating factors.
GlobalData’s consumer-tracking data continues to show a number of positive movements in consumer sentiment about both of the main brands. Over the past year, there has been a 4 percentage point increase in the number of American shoppers who say they consider Abercrombie when shopping for apparel. For Hollister, the same metric rose by just shy of 6 percentage points. The same research also reveals that among core shoppers, perceptions of quality and design at both Abercrombie and Hollister are up sharply on last year.
The results justify the step changes that have been made to things like fabrication, detailing and styling of the product set. The range – especially at Abercrombie – is now more sophisticated, more on-trend, and better reflects what modern consumers want. There is also a cohesiveness to the assortment which stimulates multiple purchases and helps to push up average transaction values. However, as good as these things are, both brands have more to do yet in making consumers aware of the changes and getting them to take a fresh look at the brands.
Many of the positive movements are far more pronounced in the US than they are elsewhere. In our view, the geographical difference in the pace of recovery is telling. While it is right that the company has focused its recovery efforts on its most important market, there is now a need to adapt some of the strategies and plays so that they are relevant overseas. Customer dynamics, competitive sets, and perception of the brands are all very different in markets like the UK and a degree of localisation is needed to ensure that the brands fully resonate with regional consumers. We believe management recognises this and has already taken some steps, such as opening a new-format mall-based store in the UK at Manchester’s Intu Trafford Centre.
Overall, the recovery at Abercrombie & Fitch is still a work in progress. However, turning around a once very-troubled brand is far from easy. Progress and advancement do not all come at once; this is a step-by-step process that will build over time.
- Neil Saunders is MD of GlobalData Retail.