Abercrombie & Fitch soars almost 30% on the stock market after entering surprise profits

The shares of Abercrombie & Fitch have soared on Wednesday in the stock market after the fashion firm has announced by surprise a record of sales in its main chain and that the group has achieved profits in the first quarter of its fiscal year, from February to April. The company has also raised its forecasts for the year as a whole. Shares have risen more than 28% two hours after the opening of the New York Stock Exchange.

"The 2023 financial year has started strongly, with net sales and operating margin in the first quarter above our expectations," said Fran Horowitz, CEO of the company, through a statement.

Net sales were 834 million dollars (777 million euros at current exchange rates) 3% more than in the same period last year, but sales of the Abercrombie brand soared 14%, to 436 million. With this, the chain that gives its name to the group is again the main one, since it surpasses Hollister, aimed at a younger audience and whose turnover fell by 7%, up to 400 million dollars. The United States and Asia have acted as engines of sales growth, falling in Europe.

Gross margin rose to 61.0%, up 570 basis points (5.7 percentage points) from the previous year. The year-on-year improvement was mainly due to 760 basis points due to lower freight costs and 230 basis points due to year-on-year growth in average unit prices, partially offset by 320 basis points due to higher cotton and raw material costs and 100 basis points due to adverse currency impact.

Attributable consolidated net profit was $16.5 million, compared with a loss of $16.5 million in the same period last year, when inflation and rising costs took their toll on the group. Analysts expected it to reduce the red, but not to make a profit.

"Abercrombie's offering is resonating significantly with our target customer, setting several other sales records this quarter across all genres, categories and geographies. Work continues on the Hollister brands," said Horowitz, who announced an increase in forecasts for the year as a whole: "Looking ahead, we remain cautiously optimistic about consumer demand and our ability to react to a dynamic macroeconomic environment, supported by our strong balance sheet," he added.

For fiscal 2023, the New Albany, Ohio-based company now expects growth of 2% to 4%, instead of the previous 1% to 3% range. Abercrombie will continue to outperform Hollister and the domestic market will continue to be stronger than abroad. In addition, fiscal year 2023 includes a 53rd week for fiscal year purposes, which the company expects to translate into an extra $45 million in total net sales in the fourth quarter and full year 2023.

The operating margin range also improves by one point, from 5% to 6% for the year as a whole. The company expects an improvement in freight and raw material costs, partially offset by the combination of inflation and increased investment in other operating expenses.

The results suggest that, despite economic uncertainty, some shoppers remain willing to spend on clothing. Urban Outfitters shares have also soared (rising more than 20%, then losing some ground), after the company's results, presented on Tuesday afternoon, beat forecasts. Turnover increased by 5.9% to a record $1.114 billion. Profit soared 67.5% to 52.8 million, according to the company.

Kohl's Corp. also reported better-than-expected first-quarter results on Wednesday, sending its shares up as much as 14 percent in premarket trading, though they have since deflated. In its case, the profit remained at 14 million dollars despite the fact that sales fell by 3.3%, to 3,355 million, as reported by the company in a statement.

Follow all the information of Economy and Business on Facebook and Twitter, or in our weekly newsletter