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Abercrombie & Fitch's Hollister Wins Over U.S. Teens Again

Leo Sun, The Motley Fool

Abercrombie & Fitch's (NYSE: ANF) Hollister brand is gaining ground with U.S. teens again, according to Piper Jaffray's latest "Taking Stock With Teens" survey of 8,000 teen shoppers. Hollister claimed a 3% mindshare and was ranked as the fifth favorite clothing brand after Nike, American Eagle Outfitters (NYSE: AEO), Adidas, and Forever 21 -- in that order.

That might not seem significant, but Hollister didn't even crack the top five in Piper's prior semiannual surveys last fall and spring. Does the brand's resurgence indicate that brighter days are ahead for Abercrombie & Fitch?

A Hollister ad campaign featuring summer apparel.

Image source: Hollister.

How Hollister became relevant again

Abercrombie & Fitch struggled over the past decade, as mall traffic dried up and teen shoppers gravitated toward fast-fashion brands like H&M. Then-CEO Mike Jeffries' comments about wanting to sell clothes only to "cool" and "attractive" teens further alienated customers, and its large logo apparel and cologne-filled stores were widely ridiculed. By the time Jeffries retired in late 2014, A&F and Hollister were both in dire shape.

A&F treaded water without a CEO for more than two years before promoting its chief merchandising officer, Fran Horowitz, to the role in early 2017. Under Horowitz, A&F downsized its namesake brand and turned Hollister into its biggest one.

The company revived Hollister with fresh marketing campaigns across the music, video, and gaming markets, and enlisted social media influencers to promote its clothing. Hollister also launched a YouTube documentary series with Viacom's AwesomenessTV, This Is Summer, which generated 21 million views.

Those efforts enabled Hollister to post nine straight quarters of positive comps growth, which repeatedly offset the softer growth of A&F's shrinking namesake brand:

Brand

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Hollister

11%

6%

4%

4%

6%

A&F

5%

3%

2%

1%

(2%)

Total

9%

5%

3%

3%

3%

Comparable store sales growth. Source: A&F quarterly reports.

Becoming the company's biggest growth engine

For the full fiscal year (which ended on Feb. 2), Hollister's revenue rose 6% to $2.15 billion and accounted for 60% of its top line. A&F's revenue, which comprised the remaining 40%, dipped 1% to $1.44 billion.

The company finished 2018 with 861 stores worldwide, which included 542 Hollister and 319 A&F locations. That gives it a smaller brick-and-mortar presence than its main rival, American Eagle Outfitters, which finished 2018 with 1,055 stores.

Hollister opened eight U.S. stores in fiscal 2018 while closing nine, which caused its domestic store count to dip from 394 to 393. It opened five overseas locations (and didn't close any stores), boosting its international count to 149 locations.

Meanwhile, the company reduced its domestic A&F store count from 285 to 270, with five new openings and 20 closures. However, it still expanded A&F's overseas presence by increasing its international store count from 45 to 49.

An assortment of products from Abercrombie & Fitch.

Image source: Abercrombie & Fitch.

The road ahead

Many of Abercrombie's new stores are smaller-format locations, which reduce its operating expenses and enable the company to maintain tighter control over its inventories. Those new stores also include "prototypes" for Hollister and A&F.

Hollister's prototype stores, which were introduced in 2015, replace its dated "surf shack" look with a more contemporary design that features brighter paint, a more spacious layout, new fixtures, and better product visibility.

Horowitz led those renovations when she was still Hollister's brand president, and they continued after she was promoted to the company's chief merchandising officer and chief executive positions. The company is also launching new prototype A&F stores to replace its dark, cologne-filled stores with brighter and more inviting designs.

Abercrombie hopes that these steps -- along with fresh, inclusive marketing campaigns and new clothing designs that no longer feature big logos -- will win over younger shoppers again. Piper's survey indicates that those moves are paying off: The apparel retailer could surprise investors when it presents its first-quarter report in June.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of Nike. The Motley Fool has a disclosure policy.