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How Abercrombie has the edge over other retailers

Abercrombie & Fitch (ANF) posted its third-quarter report, beating out not only Wall Street expectations but many investors' expectations. With the holiday shopping spree right around the corner and consumers continuously adapting to fit around inflation and economic headwinds, retailers are doing what they can to adjust accordingly.

Telsey Advisory Group CEO Dana Telsey joins Yahoo Finance to discuss the state of retailers, how Abercrombie has had the edge over other retailers, and how some retailers like Gap (GPS) are trying their best to mimic Abercrombie's success.

"Look what's happened, the core Abercrombie brand has become a lifestyle brand. The new stores that they're opening in neighborhoods like Flatiron in New York City, they're smaller but they're very productive," Telsey says. "You look at Hollister, where it's had its second quarter of second consecutive sales growth, she's [Abercrombie & Fitch CEO Fran Horowitz] put the data together of who her customer is, offering them what they — it's unique, it's different, and it's an environment that people want to go together to shop and convert."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

SEANA SMITH: Dana, what do you make about what's going on over at Abercrombie? When we take a look at these retailers across the board, there were several things to take issue with or be a bit disappointed when you take a look at these results. But comparing that to what we heard from Abercrombie, it was hard to find any sort of weakness in this report. What are they doing that some of their rivals are not that's giving them the edge in this environment?

DANA TELSEY: You're absolutely right. Abercrombie's been a pick of ours as a favorite for 2023, and the combination of the work that's been going on that Fran Horowitz, the CEO and her team have done over the past three years, whether it's data and reinventing the brand. Look what's happened-- the core Abercrombie brand has become a lifestyle brand.

The new stores that they're opening in neighborhoods like in Flatiron in New York City, they're smaller but they're very productive. You look at Hollister where it's had its second quarter of consecutive sales growth. She's put the data together of who her customer is, offering them what they want, it's unique, it's different, and it's an environment that people want to go together and shop and convert.

There's more to come as some of their smaller brands like YPB and Gilly Hicks, along with the remodelings of new stores and the strength of the balance sheet give it a path for growth in 2024 also.

SEANA SMITH: So Dana, compare that to what we're seeing play out right now at Gap, because yes, there were some reasons to be a bit encouraged by the results that we are getting, obviously, the new CEO at the helm Richard Dickson. In terms of what they are doing to reshape their brand, trying it sounds like maybe to take a page out of Abercrombie's book in terms of exciting their lost customer, are they moving quick enough, and what do you want to see play out in that turnaround plan?

DANA TELSEY: There's been a lot of change at Gap. And keep in mind, yes, it comes from Richard Dickson having just joined nearly at the end of July after having been on the board since November. They put in a new leader at Old Navy last year from Walmart. Keep in mind, when you think about Gap, it has a business with Old Navy that caters to a lower-income consumer who's more pressured these days, whether it's from rising rates or you don't have the stimulus benefit.

It did improve to a positive 1% comp, the first positive comp that Old Navy has had in nearly two years. So could there be the benefit of a trade down of consumers trading down? We all Gap needs to be redone. Where the Gap needs to be redone and remodeling of the stores or remodeling of the merchandise, there definitely is more to do.

And we've seen Banana now introduced Home and Athleta just got a new leader a month ago. It took Fran three years to put all this together with her team. Richard Dickson has been there less than three months. So more to come.

- Dana, we have time for one more here. I want to talk about beauty shifting gears for a second. We've seen a pickup in the stock prices. Sally Beauty up 23% over the last month, E.l.f 13%, Ulta 9%. Is this-- and for the year, it's kind of been a mixed picture as I'm looking at the Y-Fi Interactive , you got some big winners and big losers here. What's your what's your take on the space?

DANA TELSEY: I think beauty is a category that was called out in third-- in the third quarter by so many companies, whether it was Macy's, whether it at Nordstrom, whether it was Kohl's, it's been a category of strength. We've had definitely headwinds. I mean, you look at Estee Lauder who has dependency on China to a great extent, so there's differences happening there. I think the category continues to be in demand. I think Ulta definitely is a winner for holiday 2023.

- All right. Thank you, as always, for stopping by. Dana Telsey, Telsey Advisory Group's CEO and chief research officer.

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