On Wednesday, shares of the specialty apparel retailer surged about 5% as fourth quarter adjusted earnings of $1.08 a share trampled Wall Street forecasts for $0.99 a share. Net sales hit $1.11 billion compared to expectations for $1.10 billion.
Comparable store sales, which are sales from stores opened longer than a year, rose 1%. The increase represented the first gain in overall comparable store sales since the third quarter ended October 29, 2011 according to Bloomberg data.
The Abercrombie & Fitch division, which has undergone a major shift to more polished clothing that targets 25-34 year old men and women, managed to improve its comparable store sales results each quarter of 2015. For the fourth quarter, same-store sales for the Abercrombie division declined 2%, better than the 5% drop in the third quarter.
Gone are all the clothes with logos plastered all over them. In are new, more sophisticated looks for Abercrombie & Fitch.
At Hollister, which has sharpened its price points to compete with fast fashion players such as H&M and enhanced its California lifestyle offerings, it posted its second straight same-store sales increase. At a 4% increase for the quarter, the comparable store sales result bested the 3% increase from the third quarter.
TheStreet talked with Abercrombie & Fitch executive chairman Arthur Martinez to discuss the quarter and the retailer's turnaround strategy. Martinez, who is credited with orchestrating a major turnaround of Sears in the 1990s, took over for long-time Abercrombie & Fitch CEO Mike Jeffries in December 2014. Since then, he has worked diligently to drive improvements in merchandise quality and the look of the stores, as well as bringing in new talent.
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TheStreet: The merchandise at Abercrombie & Fitch really started to look different and more sophisticated in the latter part of 2015. Who is the target customer for the Abercrombie & Fitch brand nowadays?
Arthur Martinez: I wish there was a person I could point to and say that is our customer. We have been [typecast] as a teen retailer for the last two decades. The customer that is in our store today is less often a teenager than ever before. It's somebody that may have grown up with Abercrombie & Fitch as a teenager, but who has moved on in his or her lifestyle.
Our job now is not to present a uniform to the customer, but rather a series of choices that allows them to assemble a wardrobe that fits their personality and style. It's a slightly older customer, a 20-something customer rather than a teen customer with greater sense of confidence in their personal style. The uniform, one-size-fits-all approach is a thing of the past.
TheStreet: Why has the female business at both brands come back quicker than the male business?
Martinez: I wouldn't say we look across the company and say the girls business has some structural reason why it has been better. The evolution of the guy's tops business away from logo-driven sweatshirts, hoodies, polos, t-shirts is a harder evolution. It requires a little more training of the customer -- that experimentation into woven fabrications and different fabrics is OK. It's a bit more of a journey than it has been in the girls business.
The girls business is a little more trend driven, and I think we have been more on top of trend lately than we have been in the past. The bottoms business across both genders and both brands continues to be solid. But tops are most often where the fashion statements are made, and we have just been more successful in the short-term getting it right, especially at Hollister.
A photo posted by Abercrombie & Fitch (@abercrombie) on
TheStreet: Same-store sales increased in China during the fourth quarter. You announced the company is moving forward with more openings there this year, despite the economic slowdown. Can you explain the strategy?
Martinez: We have made a major commitment to localize the e-commerce capabilities in China -- for example, Chinese-language websites and local fulfillment. Local fulfillment in particular has been a big accelerator to our business in China. We are taking a measured approach to opening new stores in China, we are not just throwing capital at it.
When we look at third- and fourth-tier cities which still have a million-plus population, we are going a little slower. But there are going to be 700 million middle class people in China in the near future and that is a pretty rich pool of customers. There may be some macroeconomic issues at work, but there isn't a country in the Western world that wouldn't die for 7% growth.
TheStreet: You have been in retail for quite some time, once leading the turnaround of Sears (SHLD) in the 1990s. With so many anchor stores closing such as Sears, Macy's (M - Get Report) and J.C. Penney (JCP - Get Report) , what's your assessment on how this is impacting the mall more broadly?
Martinez: The A-rated malls continue to be attractive places to be and destinations for people, there is no question about it. I would say the C- and D-rated malls are under enormous pressure. As we look at the anchors that are closing and co-tenancies in the specialty stores that are also closing, it's kind of an ominous future for those C- and D-rated malls. The A and B-rated malls where we concentrate our capital for store remodels, we think they have a very robust life ahead of them.
There is a Darwinian process going on in the mall just like there is in the retail world...it's survival of the fittest.
TheStreet: Surfing around the Abercrombie & Fitch and Hollister websites, it still feels like you have an opportunity to offer more athletic wear. Anything coming you could share?
Martinez: For the Abercrombie & Fitch brand there will be elements of today's athleisure trend, but it won't be a huge statement to be honest. It won't be a major lifestyle statement for us.