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June22,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Takeaways from the Abercrombie & Fitch Investor Presentation at the Jefferies 2017 Global Consumer Conference
AttheJefferies2017GlobalConsumerConference,whichwasheldthisweekinNantucket,Massachusetts,Abercrombie&FitchCEOFranHorowitzprovidedarecapofthecompany’sfirst-quarterperformance,alongwithCFOJoanneCrevoiseratandVPofInvestorRelationsBrianLogan.Theteamalsoprovidedanoutlookontheremainderof2017andanupdateonthecompany’sstrategicinitiatives.Keytakeawaysinclude:
1) Abercrombie&Fitchexpectscompsalestoremainchallenging,andtoseetrendimprovementsinthesecondhalfoftheyear.Thecompanyexpectsthegrossprofitratefortheyeartobeslightlybelowlastyear’sadjustedrateof61%.Intermsofoperatingexpenses,thecompanyexpectstodeliver$100millioninexpensereductions.
2) Thecompanyplanstoinvestnearly$100millionin2017,including$70millionfornewstoresandrenovationsofcurrentstores.Thecompanyplanstoclose60storesintheUSbytheendofthisyear,andtoremodel47storesandopensevenfull-pricestoresandtwooutlets.Managementsaidthecompanyplanstospend$20milliontoenhanceitsdigitalfoundation,includinginvestmentsintherolloutofitsinternationalomnichannelcapabilities.
3) Thecompany’sstrategicinitiativesincludestrengtheningitsomnichannelpresence,engagingwithcustomersthroughloyaltyprogramsandsocialmedia,renovatingstoresthroughanupdatedprototypemodel,andpartneringwithwholesalersandfranchiserstoreachmoreconsumers.
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June22,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
AttheJefferies2017GlobalConsumerConference,whichwasheldthisweekinNantucket,Massachusetts,Abercrombie&FitchCEOFranHorowitzprovidedarecapofthecompany’sfirst-quarterperformance,alongwithCFOJoanneCrevoiseratandVPofInvestorRelationsBrianLogan.Theteamalsoprovidedanoutlookontheremainderof2017andanupdateonthecompany’sstrategicinitiatives.Belowareourkeytakeawaysfromthepresentation.
FinancialResultsfor1Q17Managementreportedthatoverallresultsforthefirstquarterwereinlinewithexpectations.Thecompany’snetsalesweredown4%andgrossmarginwaspressuredbysteeptrafficheadwindsandmorepromotionalactivitythanhadbeenplanned.Theoperatinglossforthequarterwas$70million,comparedwitha$55millionlossinthesamequarterlastyear.Thenetlossperdilutedsharewas$0.91comparedwitha$0.59intheyear-agoquarter.
Comparablesaleswereinlinewithexpectationsandhaveimprovedsequentiallyoverthepastfewquartersacrossallbrands,geographiesandchannels.Inthequarter,Hollister’scompsaleswereup3%,Abercrombie’scompsalesweredown10%andthecompany’soverallcompsalesweredown3%.
Managementreportedthatthecompanyendedthefirstquarterwith$421millionincash,with$258millioningrossborrowingsoutstandingcomparedwith$293millionintheyear-agoperiod.Thecompanyexpectstogeneratethecashneededtooperatethebusiness,meetitsexpensesandmaintainthedividend.
OutlookfortheFullYearAbercrombie&Fitchexpectscompsalestoremainchallengingforthefullyear,andtoseetrendimprovementsinthesecondhalfoftheyear.Thecompanyexpectsthegrossprofitratefortheyeartobeslightlylowerthanlastyear’sadjustedrateof61%.Intermsofoperatingexpenses,thecompanyexpectstodeliver$100millioninexpensereductions.Thecompanyexpectsoperatingexpensestobedown3%fromlastyear,with65%ofthereductionoccurringinthesecondhalfoftheyear.
ChannelOptimizationSince2010,Abercrombie&Fitchhasclosedapproximately400storesintheUSandremodelednearly150stores.Overthesametimeperiod,thecompanyhasinvested$400millioninwebandmobileexperiencesandomnichannelandCRMcapabilities.
Source:abercrombie.com.hk
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June22,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
For2017,thecompanyexpectscapitalexpenditurestobenearly$100million.Ofthat,thecompanyplanstoinvest$70millioninnewstoresandstorerenovations.Thecompanyexpectstoremodel40Hollisterstores,including10downsizes.ItplanstoremodelsevenAbercrombie&Fitchprototypestores,withfourdownsizes,andtoopensevennewfull-pricestoresandtwonewoutletstores.Bytheendoftheyear,thecompanyexpectstoclose60storesintheUSthroughnaturalleaseexpirations.Approximately50%ofthecompany’sUSleasesexpirebytheendof2018.
Abercrombie&Fitchexpectstospend$20milliontoenhanceitsdigitalfoundationtosupporttheinternationalrolloutofitsomnichannelcapabilities.
StrategicInitiativesThecompanyreportedthatoverallresultswereinlinewiththeplanandthatHollistercontinuestodemonstratepotential.Managementcharacterizedthecompanyasaworkinprogress.Abercrombie&Fitchisemphasizingitsbrandingstory“whenever,whereverandhowever”customerschoosetoengagewithitsbrands.Theomnichannelstrategyiscentraltothisbranding.Thecompanyreportedthatdirect-to-consumersalesaccountedfor27%oftotalsalesinthefirstquarterof2017,upfrom24%intheprior-yearperiod.Thecompanyhasincreaseditsomnichannelofferingstoincludeanumberofservicesandfeatures,includingpurchaseonline,pickupinstore;reserveinstore;orderinstore;onlineandin-storereturns;andasharedcartbetweenmobileanddesktopdevices.
Loyaltyprogramsareanotherstrategicinitiativeforengagingwithcustomers.ThecompanyrolledoutaloyaltyprogramforAbercrombie&FitchcalledClubCali,whichisaddingapproximately250,000memberspermonth.TheClubCaliloyaltyprogramendedthefirstquarterof2017with5.7millionmembers.Thecompanyisalsousingsocialmediatoengagewithconsumers.Hollisterfeatureda“Thisissummer”campaignonitsYouTubechannel,whichhadover5millionfollowers.Duringthefirstquarter,HollisteralsolaunchedasurfgameonMobilePlaythatreceived27millionsocialmediaimpressionsacrosstheplatform.
Managementreportedthatitisalsoupdatingitsstoreprototypestoasmaller-formatstorewithupdatedfixturesreminiscentofthecompany’shistory.ThefirstAbercrombie&Fitchprototypestoreopenedinthefirstquarterofthisyear.Thecompanyreportedthatthestorehasgeneratedhigherproductivityandthatitplanstorolloutsixmoreprototypestoresin2017.
Managementhighlightedthatitsfranchiseandwholesalepartnershipcollaborations—includingwithfranchisepartnersGrupoAxoandMajidAlFuttaimandwholesalepartnersASOS,Next,ZalandoandZalora—arehelpingAbercrombie&Fitchprovidenewplatformsforreachingconsumers.Forexample,thecompanyprojectsthatitsnewpartnershipwithe-commerceretailerZalorawillhelpAbercrombie&Fitchreachmorethan600millionconsumersinSoutheastAsia.
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June22,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comErinSchmidtResearchAssociate
HongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242–246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,18thFloorNewYork,NY10018Tel:6468397017
FungGlobalRetailTech.com