Abercrombie & Fitch CEO: ‘The '90s is the biggest influence that’s happening out there’
Abercrombie & Fitch CEO Fran Horowitz joins Yahoo Finance Live to discuss the company's Q3 earnings and resulting stock drop, denim trends, TikTok, inventory, and more.
Video Transcript
BRIAN SOZZI: Welcome back to Yahoo Finance's special presentation of "The Future of Retail", or as I have been calling it all special long, your pre-Black Friday kickoff show. I'm Brian Sozzi, really, still in the middle of New York City, the action where it's happening, Greeley Square. Seeing H&M behind me, seeing Macy's. Lots of activity here in the city. Very interesting to be back out in the thick of it all.
This was not the scene last year as the pandemic was absolutely raging. These streets were ghost lands, ghost lands, I assure you. But let's stay on here, let's keep it moving and bring in Abercrombie and Fitch's CEO Fran Horowitz, fresh off her earnings call a couple of hours ago.
Fran, always nice to see you. Wish you were here with me doing this, but I will take you wherever you are. I can't exactly see you. So take us through some aspects of the quarter. How is your momentum headed into the holiday season?
FRAN HOROWITZ: Hey Brian, so happy to be here. And yes, I wish I was out there with you shopping the stores in person. I'm looking forward to getting out there myself this Friday for Black Friday and feeling all that energy that you're feeling out there today.
Listen, we reported a great third quarter, some really exciting statistics for us. All the brands are firing on all cylinders. It's our best Q3 operating margin up income since almost a decade.
Q3 sales, best since 2014. Our product, our voice and our experience or resonating. We are definitely heading into the holiday season with some momentum.
BRIAN SOZZI: Help us understand the stock price reaction. I mean, we're not asking you to trade the stock here or whatever it is. Because the quarter to me looked good.
I would say gross margins down 30 bips or basis points year over year. That is good in an environment where you're seeing inflation, you're seeing supply chain bottlenecks. How do you explain what happened here?
FRAN HOROWITZ: Listen, Brian, I'm focused on the long term. Our gross margin on a two year basis is up several hundred basis points and we are ready to compete for holiday. We feel very good about our third quarter results and we feel even better about where we are headed into the holiday season. This is a big week that's coming up and it is just the beginning of you four to five good weeks for us, best weeks of the year, that really bring our customer out for both for self purchasing and gifting as well.
BRIAN SOZZI: So let's dive into the US results. Sales up double digits. How did Abercrombie do and how did Hollister do?
FRAN HOROWITZ: Company was up 17%, 17 and 18-- Sorry, 17% for both brands in the US. That has been-- It is our largest market, as you know, and it's been our strongest results year to date. We're really seeing a very healthy consumer here in the US.
BRIAN SOZZI: What are you seeing consumers gravitate towards to? We were just talking to Foot Locker CEO Dick Johnson and I realized that my wardrobe is completely out of style. What are people buying?
FRAN HOROWITZ: Well, that's great news. We love to hear that. We love to hear a consumer that's ready to go shopping.
BRIAN SOZZI: I'm sure. I'm sure.
FRAN HOROWITZ: So let's start with denim. Denim we just set a record for the company for the third quarter, our best denim in history. We are seeing so many exciting trends happening in denim, actually across men's and women's.
He and she responding to all the new fits that are out there. I certainly hope you bought our '90s straight jean for men's, it's one of our best sellers. At the same time, we saw another record for dresses in Abercrombie. Our Abercrombie female shopper, she is out there, she's socializing, she's ready for holiday.
And at the same time, we're still seeing cozy, right? We're still seeing nice selling in our knits and our fleece. So whatever your occasion is, we are ready there to dress you for whichever occasion, however you want to celebrate the holidays this year.
BRIAN SOZZI: If you are implying that I should head back to the '90s, you might be right. That probably was the last era I was pretty cool in. Help settle the record for us. Are skinny jeans, are they out of style? Is that now just a trend that's just not going to play post-pandemic?
FRAN HOROWITZ: You know what Brian, my favorite word, and everyone on campus knows this, is balance. It's very important to keep your assortments balanced. We are still seeing a customer who is interested in the skinny jean. And when the season changes, as you are out there in the cold today and people start to wear their boots, they're going to be looking for skinny jeans.
Our wide leg jeans and our newer fits, our mom, our dad, our flair, those are selling extremely well. So what's exciting is she actually needs both in her closet. So she may have a skinny jean, she may need a refresh on her skinny jean, but she definitely needs some in the new silhouettes out there.
BRIAN SOZZI: I think I did a double take. I've been seeing a lot more cargo pants from the late '90s for guys appear back in stores and online. Why is the cargo pant coming back?
FRAN HOROWITZ: The '90s is the biggest influence that's happening out there for our consumer today. They're taking a lot of their style cues from TikTok. TikTok has really been the most influential social platform that's out there. And when our customers seeing something on TikTok, they're adopting earlier than they ever have before.
BRIAN SOZZI: Let's head overseas, Fran. The sales were down in the third quarter both in Europe and Asia. Is that the direct effect of the pandemic? It just hasn't ended overseas at all.
FRAN HOROWITZ: Listen Brian, we believe so. As you mentioned earlier, terrific what we've seen happening in the US, definitely a much slower recovery both in EMEA as well as in APAC. The good news is, the UK, which is our second largest market out there, we are starting to see sequential improvement. We're starting to hear and see that the footfall and the customers back out shopping.
In fact, we just opened up a new Abercrombie adult store on Regent Street. We were able to relocate from Savile Row where we opened a smaller, more intimate store that we've already seen a nice reaction to. In fact, I'm heading overseas next week to visit the team and visit that store and I can't wait.
BRIAN SOZZI: Are you saying, is Abercrombie still committed, Fran, to the Asia-Pacific region?
FRAN HOROWITZ: We are. You know, it is our smallest and our newest region, it's less than 5% of our sales today. We are building a team in the region. We have some really terrific talent that we've recruited in there and we are still committed to the region.
BRIAN SOZZI: Have you seen-- Heading back to the US, have you seen international consumers come back? We have seen that travel ban lifted here. Are you starting to see some of these urban flagships-- And I know you've closed a lot of the factories, but you still have a presence, of course, in urban areas. Have you seen that international tourist come back?
FRAN HOROWITZ: You know, to your point Brian, that ban was lifted very, very recently. We're seeing some tick backs from that tourist customer. What we actually have seen is domestic tourists and we've been seeing that all year, the domestic tourists around the United States visiting our stores.
BRIAN SOZZI: Fourth quarter, do you anticipate that you have enough inventory to get through the holiday season? What have you done just to ensure you have clothes on the racks?
FRAN HOROWITZ: We do. So let's just start with, we've been navigating these challenges, obviously, since COVID and certainly for the first three quarters of this year, and the team has done an outstanding job getting our product from factory to the selling floor, as evidenced by the results that we've put up for the last three quarters. What's kind of interesting is this quarter we're going to see a different cadence to our product.
So where we would typically land most of our product by the fourth, by Black Friday, we will have newness from Black Friday all the way through Holiday peak. So we are going to surprise and delight that customer all month, and we have marketing dollars targeted to make sure that we tell the consumer that there's considerable newness. So the best scenario would be the customer that comes out shopping early and then comes back and shops again because they've seen something else new and exciting in our assortments.
BRIAN SOZZI: Well you heard it here first, Abercrombie and Fitch CEO Fran Horowtiz saying the '90s are back. Unfortunately, I gave all my clothes away, but maybe that's good for you, Fran. I can go back into your stores and restock on '90s and relive my high school glory.
Fran Horowitz, happy Thanksgiving. Thank you for doing this. We'll talk to you soon.
