Abercrombie & Fitch jumps on surprise profit, sales forecast raise

By Granth Vanaik

(Reuters) – Abercrombie & Fitch Co on Wednesday posted a surprise quarterly profit and lifted its full-year sales forecast, as the clothing retailer banks on its efforts to fill shelves with in-demand goods, sending its shares up as much as 29%.

The apparel retailer has worked to increase its stock across all its labels and lure affluent Americans to purchase for a variety of items including dresses, cargos and formal pants as people return to social gatherings and office work.

Consumers have been diversifying somewhat out of denims, said CEO Fran Horowitz, adding “this non-denim bottom trend that we’re seeing is really terrific.”

The company’s eponymous Abercrombie label posted a 14% increase in sales in the quarter, while the Hollister brand, dropped 7%.

“(Abercrombie) is no longer just a jeans and T-shirt business,” Horowitz said on a post-earnings call.

The apparel maker’s inventories fell 20% to $448 million, compared to a year ago.

“ANF’s Q1 report suggests brands with good momentum have remained resilient despite macro pressures,” UBS analysts said in a note.

Abercrombie’s gross margins rose 570 basis points to 61%, benefiting from lower freight costs and its efforts to control promotions.

Abercrombie’s forecast comes in contrast to several consumer companies such as Kohl’s Corp (NYSE:) and Target Corp (NYSE:) that have maintained their guidance for this year.

“While it is true that pressures are building in the retail market, we are not anticipating this to create a complete collapse in consumer demand,” said Neil Saunders, managing director of GlobalData, adding that the company is fortunately on the right side of trends.

The Ohio-based company now expects 2023 net sales to increase 2% to 4%, compared to its previous range of 1% to 3% growth.

On an adjusted basis, Abercrombie reported a profit of 39 cents per share, compared with estimates of a loss of 5 cents.