Remodeled, smaller stores help Abercrombie holiday sales top expectations

Abercrombie & Fitch Co beat quarterly sales and profit estimates on Wednesday as its new, smaller stores attracted more shoppers looking for jeans and women’s dresses in the holiday season, sending its shares up 6% in early trading.

As mall traffic across the United States take a hit from online shopping, the apparel maker has had to either shut or downsize dozens of its sprawling flagship stores and instead focus on opening cost-efficient smaller shops and pop-ups.

Sales for the company, which draws 70% of its revenue from its stores, has been improving as it remodels stores with brighter interiors and larger fitting rooms in a bid to distance itself from its out-of-fashion risqué image from the 2000s.

“Abercrombie stores were just outdated. They were dark, loud and the fragrance was all over the place,” Gabriella Santaniello, founder of retail research firm A-Line Partners, said.

“The new store format is a much more modern representation of the brand and draws the customer’s attention to products.”

Same-store sales for the Abercrombie brand rose 8% in the fourth quarter, exceeding estimates of a 3.3% increase, according to Refinitiv data.

Same-store sales in the United States rose 3%, but it fell by the same measure internationally as the remodeling of Hollister stores outside the country has been slow.

The coronavirus outbreak is set to add further pain to its international business, as the company forecast a hit of up to $80 million to its annual revenue due to the epidemic.

Chief Financial Officer Scott Lipesky said the rapidly spreading virus had caused some temporary store closures outside the Asia-Pacific region and weak traffic in tourist heavy destinations.

It forecast fiscal 2020 net sales growth of flat to 2%, while analysts expected a 1.6% rise.

The company’s fourth-quarter net sales rose 2.5% to $1.18 billion, beating estimates of $1.17 billion.

Net income attributable to the company dropped to $83.1 million, or $1.29 per share, from $96.94 million, or $1.42 per share, a year earlier.

Excluding certain items, it earned $1.31 per share, beating expectations of $1.23.