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Abercrombie & Fitch soars on stellar earnings report

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Shares of Abercrombie & Fitch soared nearly 27% Wednesday morning after the mall retailer released a stellar first-quarter earnings report.

Abercrombie beat analysts' estimates, reported a surprise profit and boosted its outlook for the full year. The numbers show that despite growing economic uncertainty, the U.S. consumer is willing to spend money on discretionary items like acid-washed jeans and polo shirts.

"Abercrombie's offering is resonating meaningfully with our target customer, setting several other sales records this quarter across genders, categories and geographies," Chief Executive Officer Fran Horowitz said in a statement on Wednesday.

The company reported a net income of $16.57 million in the first quarter. That's an improvement on a loss of $16.46 million a year earlier. Sales also rose to $836 million, up from $812.8 million a year ago.

Same-store sales grew by 3%. Analysts had forecast a decline of 1%.

The retailer also said it expects net sales to grow between 2% and 4% this year, up from previous estimates of between 1% and 3%.

The gangbusters report comes as other discretionary retailers have reported a pullback in consumer spending this season: Some of the largest retailers are warning of trouble ahead, American bank accounts are dwindling and debt is growing.

So why is Abercrombie & Fitch outperforming this quarter?

"At a high level, the answer can be found in the skills and attitude of management," wrote Neil Saunders, managing director of GlobalData, on Wednesday. "Executives are very focused on the consumer and are ever keen to understand what they want. Once they have discerned this, they know how to go about delivering this in an efficient and effective way."

A transformation

Abercrombie was a controversial staple of teen wardrobes during the 1990s and 2000s. Its sexualized advertising featuring young, shirtless male models turned the brand into a preppy status symbol for high schoolers.

And it was proudly exclusionary, refusing to make size XL or XXL for years. A recent documentary on Netflix details its culture of racism and discrimination.

"We go after the cool kids. We go after the attractive all-American kid with a great attitude and a lot of friends," former CEO Mike Jeffries said in 2006. "Are we exclusionary? Absolutely."

But the brand alienated customers, and fast-fashion stores like H&M emerged to win them over during and after the 2008 recession. Sales slumped, and by the time Jeffries left as CEO in 2014, the brand was toxic and had settled race and sex discrimination and harassment lawsuits.

But the brand has worked hard over the past decade to strip itself of that reputation and to focus on marketing casual, relaxed clothing in size-inclusive options.

"The brand today is light years away from its rather tarnished past and continues to attract new shoppers who are interested in its compelling assortments," wrote Saunders.


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