Abercrombie & Fitch shares surge 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 25%.

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 company’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.

“The lift in sales forecast is surprising given it’s early in the year,” said Paul Allison, senior analyst at investing insights platform Finimize.

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

Recent economic data revealed that consumer spending has remained strong in April despite persistently high inflation pinching wallets.

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

(This story has been corrected to fix the company name in paragraph 1)