Abercrombie & Fitch is “no longer a jeans and T-shirt brand,” CEO Fran Horowitz boasted on Wednesday’s fourth-quarter earnings call. The attire retailer soared on a 21% improve in 2023 gross sales of $1.45 billion—up from $1.2 billion the yr earlier than—however tepid gross sales development predictions for 2024 have halted its skyrocketing inventory. Following the earnings report, shares fell 9.7% in Abercrombie’s worst week since August 2022.
The retailer expects internet gross sales development from 4% to 6% for fiscal 2024, in keeping with estimates however decrease than final yr. Issues over Abercrombie’s potential to maintain income development have triggered shares to sink, Bloomberg reported.
Morgan Stanley analyst Alex Straton stated in a March 7 be aware that Abercrombie’s profitability expectations could possibly be too optimistic. Style manufacturers, which depend on cyclical seasons and developments, are susceptible to missteps, ought to they miss the mark on product rollout.
“The risk-reward skews to the downside from current levels… We caution current growth and profitability levels could be difficult to maintain heading into [the second half of the year],” she stated.
Abercrombie reached excessive highs in 2023, with its efficiency touchdown it on the prime of the S&P 1500 Index. It gained 285%, increased than AI darling Nvidia’s 239% surge. The retailer owes its gross sales success to revamping its inventory to enchantment to youthful buyers, in addition to prospects who don’t thoughts inflation-induced increased costs.
Horowitz stated the corporate intends to proceed to lean on its increasing viewers of each older Gen Zers and younger millennials for future development.
“The addressable market has gone from customers in their early twenties to late thirties, and we’ve broadened all the offerings from a category perspective,” Horowitz stated. Abercrombie has launched each special day, informal, and activewear traces to decorate younger folks for his or her weekend endeavors.
Younger generations have a robust curiosity in clothes with 87% of Gen Z, in addition to 82% of millennials, planning to purchase trend gadgets over the subsequent six months, in line with a February UNiDays survey of over 5,000 UK college students. Whereas Gen Z is cost-conscious and thrifty, additionally they don’t thoughts splurging a bit of additional on luxurious items. Gen Z and millennials are the generations more than likely to make splurge purchases, together with pricier trend gadgets. A June 2023 Harris Poll of over 2000 U.S. adults discovered that 75% of Gen Z and 68% of millennials made splurge purchases final yr.
However even younger trend fanatics might not be capable of reverse the developments of uncertainty within the trend trade. McKinsey & Company’s State of Fashion 2024 report predicts a 2% to 4% “slower but normalized” development within the trade on account of inflation and lack of shopper confidence. The Bureau of Labor Statistics famous a 0.6% uptick this month in CPI for city customers in attire.
The style trade might have an unsure future, however Abercrombie has constructed again from hardships prior to now. A decade in the past, the corporate was struggling to stay related and preferred.
How Abercrombie reclaimed the hearts—and wallets—of millennials
Solely eight years earlier than being the highest-performing inventory, Abercrombie earned the 2016 superlative of most hated retailer. Beforehand the corporate leaned on the enchantment of low-rise denims and hypersexualized fashions, however its picture soured after a slate of controversies, together with a class-action racial discrimination lawsuit and feedback by former CEO Mike Jeffries calling the retailer “exclusionary” in a 2006 interview.
Horowitz, who grew to become Abercrombie’s CEO in 2017, actively labored to alter the corporate’s cliquey fame perpetuated by her predecessor.
“We are a positive, inclusive brand, with a nice sensibility, very different from what they encountered in the past,” Horowitz said in 2016.
By 2019, Abercrombie had fully overhauled its inventory and expanded its sizes. Shops ditched the loud music and thick clouds of perfume. In a bid to separate itself from sister model Hollister, it moved away from dressing teenagers in favor of pursuing younger graduates and adults getting into the workforce.
The technique labored. In November 2022, the corporate posted an expectation-exceeding profit, even within the aftershocks of the pandemic and excessive inflation. Over the previous 5 years, it has greater than tripled its market capitalization, which grew from $1.83 billion in March 2019 to almost $6 billion.
“We grew up Abercrombie,” Horowitz stated in a 2022 Fortune interview. “We really focused on this young millennial, this young, mid-twenties consumer, and we got the response that we were hoping for.”
