Abercrombie & Fitch, the well-known apparel retailer, is boldly shifting its identity. CEO Fran Horowitz announced on Wednesday’s fourth-quarter earnings call that the company is “no longer a jeans and T-shirt brand”. Despite soaring 2023 sales of $1.45 billion, a 21% increase from $1.2 billion the previous year, Abercrombie’s shares took a hit after the earnings report. Shares tumbled by 9.7%, marking the worst week for the company since August 2022.
Looking ahead, the retailer has forecasted a net sales growth of 4% to 6% for fiscal 2024. While these predictions align with estimates, they still fall short of last year’s numbers. Concerns have been raised over Abercrombie’s ability to sustain its revenue growth, causing shares to drop, reports Bloomberg.
Morgan Stanley analyst Alex Straton voiced concerns in a March 7 note, suggesting that Abercrombie’s profitability expectations could be overly optimistic. Straton cautioned, “The risk-reward skews to the downside from current levels…We caution current growth & profitability levels could be difficult to maintain heading into the second half of the year.”
Winning the Younger Market
Despite these concerns, Abercrombie had a stellar year in 2023, topping the S&P 1500 Index and outperforming AI giant Nvidia with a 285% surge. This success can be attributed to a strategic revamp of its inventory to appeal to younger shoppers and customers willing to pay higher prices as a result of inflation.
Horowitz announced plans to continue to target the growing audience of older Gen Z and young millennials for future growth. “The addressable market has gone from customers in their early 20s to late 30s, and we’ve broadened all the offerings from a category perspective,” she explained. Abercrombie has launched lines for special occasions, casual wear, and activewear, catering to the diverse needs of young people.
According to a survey conducted by UNiDays in February, a majority of Gen Z and millennials plan to purchase fashion items in the next six months, with 87% of Gen Z and 82% of millennials expressing this intent. This is a promising trend for Abercrombie, as these generations have also shown a willingness to splurge on luxury goods.
Overcoming Past Controversies
Abercrombie has faced its fair share of controversy in the past. In 2016, the company was labeled the most hated retailer due to a series of controversies including a class action racial discrimination lawsuit and offensive comments made by former CEO Mike Jeffries. However, under the leadership of Horowitz, who assumed the role of CEO in 2017, the company has made significant strides in changing its image.
“We are a positive, inclusive brand, with a nice sensibility, very different from what they encountered in the past,” Horowitz stated in 2016. By 2019, Abercrombie had completely overhauled its inventory, expanded its sizes, and toned down its store ambiance. It also began catering more to young adults, moving away from its previous teen-centric focus.
A Bright Future Ahead?
Despite the uncertainties in the fashion industry, Abercrombie’s strategic shifts seem to be paying off. In November 2022, the company reported better than expected profits, even amid the challenges of the pandemic and high inflation. Over the past five years, Abercrombie has more than tripled its market capitalization, growing from $1.83 billion in March 2019 to nearly $6 billion.
As Horowitz put it in a 2022 Fortune interview, “We grew up Abercrombie…We really focused on this young millennial, this young, mid-20s consumer, and we got the response that we were hoping for.” It remains to be seen if this strategy can sustain Abercrombie’s growth in the face of future challenges.
