Abercrombie & Fitch (ANF) is trading higher this morning after increasing its guidance for Q4 (Jan). You're probably familiar with Abercrombie & Fitch, but just in case, they are a retailer of casual apparel/accessories for young men, women and children. Its brands include Abercrombie & Fitch, abercrombie kids and Hollister Co.
The iconic Abercrombie & Fitch brand is meant to embody American casual luxury. The Hollister brand is meant to capture the carefree spirit of the endless California summer for the teen market. abercrombie kids creates smart, playful apparel for children ages 3-14. ANF operates approximately 900 stores under these brands across North America, Europe, Asia and the Middle East, as well as e-commerce sites.
The stock has been in turnaround mode over the past couple of years. It was trading in the $32 range in March 2016, then it went into a steady decline before bottoming out in July 2017 below $10. However, it has been steadily climbing back and is now in the $20 area.
The brand stumbled in recent years as it failed to change with the times. A big part of its problem is that young people's tastes are changing. If you had been to an Abercrombie store, you would have seen the A&F logo everywhere. It's often in huge print on their shirts and sweatshirts. However, young people are moving away from logos, it's not as cool anymore as they would rather embrace individuality. Also, young people are moving to trendier/cheaper alternatives (Forever 21 and H&M) so they can change fashion choices more quickly. Another big problem has been online competition.
To combat this, ANF has been making some changes. A big change was its CEO Michael Jeffries resigning in December 2014. Then the company went several years without a CEO as it did not find the right fit. That is until February 2017, when ANF finally hired a new CEO: Fran Horowitz, who was promoted from within. Ms. Horowitz had been instrumental in the turnaround of Hollister. She has been working to reposition the Abercrombie & Fitch brand.
Turning to today's guidance, ANF now expects Q4 (Jan) same store comps to be up high-single digits, compared to the previous outlook of up low-single digits. Sales overall in Q4 are now expected to be up low-teens, compared to the previous outlook of up mid- to high-single digits. Gross margin expected to be in-line with prior guidance of down approximately 100 bp from last year's rate of 59.3%.
In addition, ANF announced that Arthur Martinez will step down as Executive Chairman of its Board at the conclusion of its fiscal year ending February 3, 2018 in connection with his plans to retire as a Director and not stand for re-election. Terry Burman, Lead Independent Director and Chair of the Nominating and Board Governance Committee, will assume the role of Non-Executive Chairman at that time.
In sum, the company says it was pleased by its performance across all brands and channels during the holiday season, with continued strength at Hollister, and the Abercrombie brand on track to deliver positive comps for the quarter. ANF plans to release full Q4 results on March 7 and will hold an Investor Day on April 25. Overall, it sounds like ANF had a good holiday season this year. More importantly, it sounds like ANF's turnaround is making some progress.