But they probably should headed into the fall and holiday shopping seasons.
Shares of the apparel retailer fell 17% on Thursday despite second quarter earnings beating Wall Street forecasts by 10 cents. Same-store sales rose 3%, slightly below analyst estimates for 3.7% growth.
Both of the company's divisions -- Abercrombie & Fitch and Holliter Co. -- saw increased sales on the back of interest in '90s themed apparel styles. Gross profit margins increased 110 basis points from the prior year, no small feat in the hyper competitive mall apparel space.
TheStreet caught up quickly with Abercrombie & Fitch CEO Fran Horowitz to discuss the quarter and outlook. What follows is an edited and condensed version of the chat.
How's the back-to-school shopping season going?
Well, we had a nice second quarter so we certainly have some nice momentum in the business, particularly at Hollister. Our U.S. same-store sales rose 9%, which underscores the acceptance of our products among consumers.
We had another record quarter for denim in Hollister. We see a whole bottoms opportunity emerging, a re-emergence of soft bottoms. It's all very '90s based. Windbreakers also very strong. The varsity trend is big again, which harkens back to our heritage at Abercrombie & Fitch.
Target (TGT - Get Report) CEO Brian Cornell has said the current consumer environment is the strongest he has ever seen. Do you share that sentiment?
We actually feel the environment is improving as well. We saw nice traffic trends for both brands in the quarter, actually ahead of the trends in the mall. I wouldn't say this is the strongest consumer environment ever, but we are certainly seeing some positivity out there.
What inning are you in for the Abercrombie & Fitch brand turnaround?
We are coming off our third straight quarter of positive same-store sales for the brand. We are building momentum. Our brand health is improving, which we see as a nice sign.
The momentum will continue into the back half of the year.
Any plans to incubate a new brand? We saw apparel retailers do this in 2005-2007 when the consumer was really out there shopping.
Right now I would specifically call out Gilly Hicks [intimate apparel]. Gilly is a must grow category for us. We are really excited about the customer engagement with that brand. We spent the first half of the year updating the brand's fits and sizes. The initial reaction to our back to school assortment has been strong.
There are two reasons this brand is exciting for us. It brings in new customers to Hollister and also adds onto the existing Hollister transaction size.
Gut instinct on how the holiday season will pan out?
I am excited about the back half of the year. I think the momentum we are coming in with from the first half, the product acceptance is strong, which gives me confidence in the back half of the year. Denim is strong, with new trends emerging.
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