#1 Hollister Is Abercrombie’s Lone Bright Spot
Hollister has been Abercrombie’s fastest-growing brand. Hollister has added $313 million to the company’s top line since 2016 at an average annual rate of 8.2%.As a result, Hollister’s contribution to Abercrombie’s total revenues has increased from 55% in 2016 to 60% in 2018.This growth has been driven by strong performance across genders and channels. Moreover, the brand has continued to benefit from a growing customer base for its swimwear and intimates categories.However, the brand’s year-to-date 2019 performance has been soft, with the brand’s total revenue witnessing a growth of just 1%. Additionally, the brand’s comparable sales have remained flat due to soft showing in the international markets.Despite the headwinds, we expect the brand to end the year on a high due to the holiday season and report a record $2.24 billion in revenues in FY 2019. Hollister is Abercrombie’s largest brand and should continue to drive the company’s growth over the foreseeable future.
#2 Digital Channel Continues To Thrive
Digital (e-commerce) channel has been pivotal to Abercrombie’s growth over the recent quarters. There has been a fundamental shift from brick-and-mortar to the online platform and Abercrombie has invested heavily in growing its Direct to Consumer (DTC) segment to adapt to this change.The company’s strategy is yielding results, as evidenced by the fact that the digital channel has continued to achieve double-digit growth over the last few quarters.Going forward, we expect the DTC segment to be the key driver of the company's top-line growth in the coming years as the company continues to invest in its omnichannel capabilities.
#3 Struggling International Business Is A Cause For Concern
Abercrombie’s year-to-date international comps have been negative 5%, with year-over-year sales declining by 6% to $842 million as macro headwinds in key markets, including the uncertainty around Brexit, continues to negatively impact sales in the UK, which is Abercrombie’s largest international market.Moreover, ongoing protests in Europe and Asia also negatively impacted the company’s results.In sharp contrast, Abercrombie’s US business has been robust with the company’s year-to-date revenue growing by 3% while comparable sales also witnessing an increase of 3%.Given the fact that uncertainty around Brexit and protests across Hong Kong failing to recede, we expect the uncertainty will continue to weigh on the company’s performance in Q4 2019.