Abercrombie & Fitch (ANF) has recorded an impressive turnaround, the retailer capturing the attention of Gen-Z consumers and hitting financial targets earlier than expected. Against a backdrop of inflation and other economic headwinds, consumers are beginning to change their shopping habits, waiting for discounts or trading down to other brands. Can Abercrombie maintain its recent performance as consumer behavior continues to evolve?
Yahoo Finance Executive Editor Brian Sozzi sat down with Abercrombie & Fitch CEO Fran Horowitz to discuss the company's recent gains and business plans in the context of retail uncertainty.
Horowitz contributes the company's success to its close alignment of product and consumer demand, discipline on inventory, and ability to change the addressable market. The CEO also reaffirmed the company's identity as a net store opener: "We have been on this journey of really reconciling our square footage in our stores for many, many years, so it's exciting to be back on the side of growth. We will open in '24, 75 new experiences...The majority of those will still lean towards North America and Abercrombie. But we will be opening up stores around the world."
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BRIAN SOZZI: One of the most remarkable stories in all of retail continued to play out in the holiday quarter. That is really the ongoing turnaround of Abercrombie & Fitch. Let's get right to the CEO making it happen, that is Fran Horowitz. Fran, always nice to get a few minutes for you-- with you, especially on an earnings day.
You really said something really interesting to me on your earnings call. You said, last year was a defining year for your company. Explain that further to us.
FRAN HOROWITZ: Absolutely. So in June of 2022, Brian, we came out with an investor day when things in the world were not particularly looking great. And it took a lot of courage to come out at that point and state our Always Forward plan, which was achieving 4.1 to 4.3 and top line revenue and on or about an 8% operating margin. And I will say overall the day was received well but very cautiously.
Now to have hit those targets, for the most part, two years early is a pretty incredible moment for us. And that's exactly why I said defining. Now our goal for 2024 is certainly to prove that those are sustainable and can continue to grow on top of that.
BRIAN SOZZI: What's really remarkable to me for among many things this quarter, which will impact, is that the economy is not out there growing 5% in terms of GDP. Wages aren't going through the roof. Consumers are making choices to-- on where they want to shop and where they don't want to shop. They're out there taking vacations and maybe not buying apparel from someone-- a department store. Why do you think you've been able to grow the business the way you have with a customer set, let's say, 20 years old to late 30s? In some cases, they don't have a lot of money.
FRAN HOROWITZ: Well, I think you said it. The customer has a choice, and they're choosing us. That's because we have been able to get the product voice and experience really aligned and respond to what the consumer is looking for. In our journey for our consumer, honestly, Brian, today starts at five. We do have our kids brand, which is also resonating. And we take them right through Hollister and then through their adulthood into Abercrombie.
But having the product that they are looking for and staying close and really truly listening to this customer, which our team has gotten very, very good at, is the big win. On top of that, our biggest learning coming out of COVID is this discipline on inventory and making sure that we are lean and mean and that we are reacting to the business on a weekly basis. So we sit down with the team, and we make sure that we look at the best sellers, what's working, what's not working. And we feed that inventory every week and we chase what's working.
BRIAN SOZZI: You're certainly, your team and your company, the outlier in specialty apparel. But there have been some signs of life. So there's some other good stories going out there in specialty apparel. Do you think we're watching just a rebirth of the specialty apparel industry where consumers are tired of spending an hour trying to find things they need in these large department stores, and they're going back to specialty retailers?
FRAN HOROWITZ: Well, I think what's exciting for us is that our omni-customer, who shops both on our digital channel as well as in the stores, is our most profitable customer. That's the one who can shop whenever, wherever, and however they choose to shop with us. So I do think that there's an opportunity to continue to stay focused on that consumer and make sure that their experience is truly a seamless one.
BRIAN SOZZI: Is this the year-- you talked a lot about trying, on the call, trying to sustain these results. Is this the year where you try to prove to Wall Street that the past 18 months weren't a fluke?
FRAN HOROWITZ: Listen, I hope we've already proved that, but it's a very fair question. We came out of '21 with very strong results. And in '22, things were a bit more difficult for us because of the supply chain issues. And '23 is exactly that. It is a defining year that all of the work over the past several years of rebuilding the foundation of this company, getting these brands on the right trajectory, and getting close to that customer are paying off. Our playbook is paying off. And this customer is choosing us, and it couldn't be more exciting.
BRIAN SOZZI: Why is Abercrombie & Fitch? Why is that brand still outperforming Hollister?
FRAN HOROWITZ: So the interesting thing about the Abercrombie brand-- Brian, I know you've been on this journey with me for a long time-- is the fact that we have been able to change the addressable market. So it's no longer a teen mall brand. It's no longer shorts and t-shirts. It's truly a lifestyle brand.
He and she joined us maybe in their early 20s. We are seeing that customer stay well into their late seconds or even early 40s. So that's number one.
BRIAN SOZZI: Thank you for keeping me in there, Fran. I was going to flag you, because on the earnings call you said 20 to late 30s. I'm like, friends aged me out of Abercrombie. I'm still buying stuff--
FRAN HOROWITZ: No, no, no. We love you-- we love you as a customer. Absolutely not.
BRIAN SOZZI: Go ahead. Go ahead.
FRAN HOROWITZ: But the second part of that is the fact that we've expanded this category. So from YPB, our active assortment, to Best Dressed Guests, the wedding shop that we launched today, was a direct result and listening to our consumer and understanding that wedding journey and how many occasions that she needs to be dressed for that. So continuing to add on all of these new categories has really been a big been part of the win-- big part of the win, apologies.
BRIAN SOZZI: One part of-- one theme I'm seeing in these retail results, and I think I saw it in yours, too, retailers are back to opening up stores, not 10 stores a year, not 20 stores a year, something even bigger. I also saw it in some of the home improvement retailers. You mentioned 45 store openings for your company this year in addition to some remodels. What gives you the confidence to just up that pace or go even faster with openings? And are you going to take some of these openings back overseas?
FRAN HOROWITZ: So this is our third year as a net store opener. We have been on this journey of really reconciling our square footage in our stores for many, many years. So it's exciting to be back on the side of growth. We will open in 2,475 new experiences.
To answer your question, the majority of those still will lean towards North America and Abercrombie. But we will be opening up stores around the world. As we continue to move on this global opportunity that we've called out, we will continue to see openings over the next several years. But this year will be focused more on the North America and on tilted towards Abercrombie.
BRIAN SOZZI: Lastly, Fran, just doing some rough math. Based on your annual sales from last year, you have about only $700 million and to hit a $5 billion sales goal that you outlined a couple of years ago was to me that time that was an aspirational number, not that I was saying, Fran, can't hit it, but I'm like $5 billion in sales, it's a lot. I mean, when do you think you could hit that number? And how do you get there? Is it a combination of opening new stores and just taking the brand overseas and further refining the assortment?
FRAN HOROWITZ: Yes. In 2022, back on that conversation about the investor day, when we put that aspirational target out there, we certainly got closer to the Always Forward portion of that two years earlier than we expected. So our goal this year is to really continue on the growth path to make sure that this profitability is sustainable and that we can continue to prove to everybody that we're on the right path.
$5 billion is still our aspiration out there. We've got investments to make beyond stores. But also, still into our digital business, we've done a lot of work and a lot of investment in that front as well.
BRIAN SOZZI: Fran, I knew-- I forgot to ask you this. On your website, Abercrombie calling '90s nostalgia clothing. I wore this stuff. It felt like yesterday. I said, when did all this 90s stuff come back? I still have some of it in my closet I think.
FRAN HOROWITZ: It's OK. It always comes back in a new iteration. There's always a reason to buy new clothes. And if you need a pair of those looser-fitting lower baggy jeans, we've got them for you.
BRIAN SOZZI: Well, I will not be dusting off my JNCO jeans, but we will take that offline. Fran Horowitz, Abercrombie & Fitch CEO, always nice to see you. We'll talk to you soon.
