Abercrombie & Fitch posts 21% sales gain, hikes outlook despite 'increasingly uncertain environment'

Abercrombie & FitchRevenue grew 21% in the second fiscal quarter as the clothing company continues to build on its meteoric growth.

The revenue growth, which follows a 16% increase in the same period last year, led the company to issue an upbeat outlook for the current quarter. Still, the full-year forecast was broadly in line with estimates as it prepares for one less week this year than last.

CEO Fran Horowitz, who often says that good companies can thrive in any economic environment, may be bracing for a turbulent second half of the year. For the first time in four quarters, she cited the uncertain state of the economy in the company's earnings report.

“We delivered a strong first half of the year and are raising our outlook for the full year. While we continue to operate in an increasingly uncertain environment, we remain steadfast in executing our global playbook and maintaining discipline around inventory and spend,” Horowitz said. “We are on track and confident in our goal to deliver sustainable, profitable growth this year, while making strategic long-term investments in marketing, digital and technology, and stores to enable future growth.”

The company's shares, which have risen nearly 89% this year, fell about 9% in pre-market trading.

Here's how Abercrombie performed compared to what Wall Street expected, based on a survey of analysts by LSEG, formerly known as Refinitiv:

• Earnings per share: $2.50 vs $2.22 expected
• Gain: $1.13 billion vs. $1.10 billion expected

The company's reported net income for the three-month period ended Aug. 3 was $133 million, or $2.50 per share, compared with $57 million, or $1.10 per share, a year earlier.

Revenue rose to $1.13 billion, up about 21% from $935 million a year earlier.

During the quarter, comparable-store sales increased 18%, driven by better-than-expected sales over the summer and in the pre-school period.

Abercrombie expects sales to rise by a low double-digit percentage in the current quarter, better than the 8.9% growth that LSEG analysts had expected.

Abercrombie raised its full-year 2018 revenue forecast from 10% growth to a range of 12% to 13%. That's roughly in line with the 12% increase that analysts at LSEG had expected.

The company’s fiscal 2024 year will have one week less than fiscal 2023, which will likely weigh on its full-year guidance. Abercrombie expects the loss of one sales week to impact the holiday quarter by $80 million, or 5.5 percentage points. For the full year, the company expects sales to reach $50 million, or 1.2 percentage points.

Over the past year, Abercrombie has become known as the biggest comeback in retail, and investors are eagerly watching to see if the company can continue its growth.

Horowitz looks to international markets and the company's Hollister and Abercrombie Kids brands as growth vectors, which are already boosting sales.

During the quarter, Hollister's sales rose 17%, while comparable sales rose 15%. In the company's Europe, Middle East and Africa division, sales rose 16%.

Costly international expansion has been one of the missteps that has hurt Abercrombie's performance in the past, but this time the company is taking a different approach.

Earlier this month, the company announced a partnership with Haddad Brands, a children's apparel licensor, to create new distribution channels for Abercrombie Kids and expand the product line into baby and toddler categories.

“As we look to diversify A&F Co.’s channel mix and drive sustainable, profitable growth, we are excited to partner with Haddad Brands to build on our success and create an opportunity to grow the brand in the years to come by attracting new customers globally,” Horowitz said in a statement at the time.

Abercrombie Kids products will be available in Haddad Brands showrooms worldwide starting next month.