Abercrombie & Fitch (ANF) reports Q2 2020 surprise profit

Pedestrians are reflected in the window of an Abercrombie & Fitch store in New York.

Craig Warga | Bloomberg | Getty Images

Shares of Abercrombie & Fitch rose after clothing retailer reported a quarterly gain on Thursday morning and an impressive 56% online revenue growth during the coronavirus pandemic.

The stock recently traded above 9%.

Even if overall sales were lower, investors were encouraged to see that Abercrombie managed to keep its costs down, amid such rapid online growth, which boosted its profitability. Typically, when a retailer’s online sales increase and store sales shrink, this comes with additional costs such as packing and shipping that weigh margins.

But Abercrombie seems to have it all – at least in the last quarter. The company said shoppers flocked to their brand’s websites, including Hollister, to pick up sweatpants, pajamas and other cozy clothing at home.

“As long as you can reduce fixed costs, this shift to digital can be cost-effective,” CFO Scott Lipesky said in a phone interview.

During the pandemic, the retailer cut costs in stores, among other things by adjusting employees’ hours, he explained, to boost their e-commerce business. “We thought it would take a little longer to get here,” he added, but the pandemic has accelerated these adjustments.

Expenditure on retail and distribution fell by almost 18%, while marketing costs fell by 16%.

Abercrombie reported net income in its fiscal second quarter ending Aug. 1 of $ 5.5 million, or 9 cents per share, compared to a loss of $ 31.1 million, or 48 cents per share, a year ago.

With the exception of one-time fees, the retailer earned 23 cents a share, better than the 83-cent loss expected by analysts, based on data from Refinitiv.

While net sales fell to $ 698.3 million from $ 841.1 million a year ago, this was even better than the $ 658.44 million expected by analysts.

“These figures are actually better than the previous year when the company made a loss both at the operational and net level,” said GlobalData Retail Managing Director Neil Saunders.

“Some of this is the result of a tight grip on costs and what is a function of better margins as a result of lower inventory and less discount,” Saunders said. “We also believe that the corrective actions of the past management – especially from underperforming retail locations – have been very beneficial.”

Like a number of other retailers, including Kohl’s and Victoria’s Secret parent L Brands, Abercrombie is calling for a slower-than-normal start to the back-to-school season this year due to the pandemic and the looming uncertainty over how classes will be instructed. Some parents are expected to spend more money on new electronics for schools at home than on clothing.

Chief Executive Fran Horowitz told CNBC that she expects sales to schools to drag all the way through to October, as retailers spread their spending this fall. She said the same trend is likely to emerge around the holidays, referring to it as a “flat of the bend.”

“Maybe the peak [around] “Black Friday is not that big, but there is still a lot of opportunity to do a lot of business in December,” she said.

Abercrombie has not offered any forecast for the rest of the year. The stock, which has a market value of about $ 759 million, is so far about 28% lower.