In a sea of retail earnings disasters this week, there was a beacon of hope in Abercrombie & Fitch (ANF).
It didn't come as a surprise to CEO Fran Horowitz.
"The story behind the story is years of hard work, lots of transformation in the company," Horowitz said on Yahoo Finance Live (video above). "We’ve really top-down and bottom-up gone through every single function."
Abercrombie & Fitch hit the bullseye in almost every retail metric, which comes as fellow mall apparel players Urban Outfitters (URBN) and Foot Locker (FL) served up terrible quarters and outlooks.
The namesake Abercrombie & Fitch division saw second quarter same-store sales explode by 23% as Horowitz and her design team nailed summer and back-to-school styles. Amid improved assortments at Hollister, the brand finally showed some life again with a 5% same-store sales increase.
Gross profit margins rose 460 basis points to 62.5% as Abercrombie sold more merchandise at full price, almost a shocker in the current challenging spending backdrop.
To boot, inventories fell 30% — a clear sign of strong operational execution on ordering and planning — and earnings blew away consensus forecasts by $0.93.
The icing on the cake: The third quarter looks to be off to a strong start.
The company forecast third quarter sales growth of a "low-double-digit" percentage. Operating margins are pegged to expand close to 800 basis points from the prior year.
"Our expectation for holiday is that we're going in with momentum," Horowitz said. "We're ready to manage anything that comes our way. ... If things do happen, and the consumer becomes more pressured, the best way to be is very lean in your inventories."
Abercrombie stock surged 20% during Wednesday's session.
"ANF is the brightest star in the sky," Citi retail analyst Paul Lejuez wrote in a client note.
But there's a wildcard for Horowitz and her team that will affect whether its momentum continues: the economy, including the restarting of student loan payments.
Read more: Worried about when student loan repayments resume? These programs could help
Horowitz is confident her company can overcome macroeconomic pressures in the third quarter as the business is fueling consumer needs for wear to work and life occasions.
The longtime ANF CEO isn't ready just yet, however, to raise long-term operating margin guidance.
The company sees full-year operating operating margins in the 8% to 9% range. Its 2025 targets shared at a 2022 investor day were for margins of 8% to 10%.
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email [email protected].
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