Is Abercrombie & Fitch Cool Again?
(NYSE:ANF) What has driven Abercrombie's Stock 67% CAGR over the last 5 years
Think back to when you were a teenager, or when your kids were teenagers. Now picture an Abercrombie & Fitch or Hollister retail store. Close your eyes, and tell me what you see. Surfboards, big logos, big stacks of clothing, the same designs replicated in a rainbow of bright colours. Hot, clammy, dimly lit, with the sweet sickly smell of heavily diluted fragrance wafting through the air. Chances are, if you entered a store anytime before 2018, this was your experience.
In the early 2000s, Abercrombie and Fitch was an aspirational brand for teenagers in the United States and parts of Europe. Once those teenagers grew up and became adults, it started to weigh on the company’s results. In February 2013, Abercrombie reported trailing revenue of $4.5 billion, a figure which remains the all-time peak. From there revenue evaporated, falling to $3.3 billion by the summer of 2017. It wasn’t just shifting demographics that rocked Abercrombie. The company was mired in unsavoury scandals from within the executive suite. But something has changed. Between 2018 and 2021, Abercrombie’s market cap hovered between $1 billion and $2 billion. And today, it’s closer to $9 billion.
The company has been highlighted in the financial media more frequently in the last 12 months because of its share price’s change in fortunes. But this change has been underway for the last six years. In May of this year, Abercrombie reported earnings for the first quarter and announced sales of $1 billion, up 22%. Operating margins have reversed a decade-long downward spiral and are now at the highest level since before the financial crisis of 2008. Considering that each quarter gets sequentially stronger in the year for Abercrombie, it’s all but certain they will eclipse their 2013 revenue peak this year.
What has changed? Observant shoppers might have noticed a shift in Abercrombie’s aesthetic long before any prawn-spined analyst hunched over their desk. Today, stores are brightly lit, the big logos are gone, and the bright colours have been replaced with a toned-down and neutral aesthetic. It’s as though the brand has matured alongside its former clientele. In a time when all anyone seems to talk about is rising prices both Abercrombie and Hollister (a subsidiary of the Abercrombie company) appear to offer value for money across their newly understated collections. The kids had grown up and moved on from Abercrombie. Realising this, the company revitalised their offering in the hopes that they return as adults. So far, it seems to be working.