Abercrombie Share Rebound Could Show Gap The Playbook Forward

Abercrombie & Fitch shares surged more than 22% after the company raised its full-year sales and profit forecasts, with the stock currently trading around $145. The move reversed a mid-year decline of more than 10% and pushed the shares back towards their 52-week high. The immediate catalyst was second-quarter sales of $1.27 billion, up 5% year on year, while earnings per share of $4.17 more than doubled Wall Street expectations. Abercrombie raised its full-year sales-growth forecast to around 5%, at the top of a previous range of 3% to 5%, and lifted its EPS guidance to $13.10-$13.60 from $10.20-$11. Admittedly, Abercrombie's quarterly profits were helped by roughly $100 million of tariff refunds, worth around $1.75 of EPS, but the underlying business was also substantially better than the headline profit number suggests. And what Abercrombie has shown is that apparel retailers can still take share from consumers even when the environment is difficult so long as they are sufficiently focused on product, customer and brand. The Abercrombie brand produced 8% sales growth and a 4% comparable-sales increase. Hollister sales rose 2%, although comparable sales declined 3%. Americas sales increased 5%, APAC rose 19% and EMEA was up 2% as the company delivered its 15th consecutive quarter of sales growth. Neil Saunders, managing director at GlobalData, told Reuters that the Abercrombie brand was benefiting from "stronger spending from core customers and a strong assortment,” while Telsey Advisory Group's Dana Telsey similarly pointed to improving trends at Abercrombie and easing pressure at Hollister. Abercrombie Focuses On Product But Abercrombie's most important strategic decision was to stop hankering after the Abercrombie of the 2000s. Under CEO Fran Horowitz, the company has shifted from the highly distinctive but increasingly restrictive image built under former CEO Mike Jeffries and is far less about demographic identity and more about product categories with broad reach. Horowitz has repeatedly stressed the importance of listening to customers and in a company interview she said Abercrombie was "staying close to our customers and really listening to their needs." The company has been able to grow sales without relying on the kind of permanent promotional intensity that has damaged many...