Abercrombie & Fitch (ANF) reports quarter earnings Wednesday. Analysts expect revenue of $1.16 billion and eps of $1.1. The estimate represents over 25% revenue growth sequentially, and likely reflects robust holiday sales. Other retailers like Target (TGT) and Urban Outfitters (URBN) also reported strong holiday sales. Market chatter suggested Abercrombie & Fitch put itself up for sale last summer. The company was plagued by eroding sales and an inability to keep pace with customer preferences. When it did not receive any acceptable offers it decided to go it alone.

Since, management has stemmed the slide in its top line. The Hollister brand has been a stalwart as the Abercrombie brand has struggled. The company also stabilized margins to help grow the bottom line. ANF is up over 75% Y/Y versus 15% for the S&P 500 (SPY). Investors should focus on the following key items.

Can Hollister Continue To Shine?

Last quarter total sales were up 5% Y/Y. Hollister grew revenue by 10% while the Abercrombie brand was off 2%. Direct-to-consumer sales were up 11%. More than two-thirds of direct-to-consumer traffic was driven by mobile as the company’s phone and app productivity growth continues to grow. Nonetheless, direct-to-consumer growth lacks Urban Outfitters’ which is experiencing over 20% growth in the segment on a similar sized revenue base.

A major investment in omni-channel marketing has paid off, particularly for Hollister which saw strong sales growth across all channels and all regions. Abercrombie & Fitch has also gotten closer to its customers, attaining constant feedback on what products are hot and vice versa. The Abercrombie brand appears to be stabilizing and could actually grow if the company can to translate positive traffic and conversion trends to the brand.


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