Abercrombie & Fitch shares are soaring as the retailer’s online sales boom and are profitable

Abercrombie & Fitch shares are soaring after the apparel retailer reported a surprise quarterly profit Thursday morning and impressive online revenue growth of 56% during the coronavirus pandemic. 

Its stock was recently trading up more than 9%. 

Even though overall sales were down, investors were encouraged to see that Abercrombie managed to keep its costs down, amid such rapid online growth, boosting its profitability. Typically, when a retailer’s online sales rise and store sales shrink, that comes with added expenses like packing and shipping that weigh on margins. 

But Abercrombie seems to have it all figured out — at least in the latest quarter. The company said shoppers flocked to its brand’s websites, which include Hollister, to stock up on sweatpants, pajama sets and other cozy clothes to wear at home. 

“As long as you can reduce fixed costs, this shift to digital can be profitable,” CFO Scott Lipesky said in a phone interview. 

During the pandemic, the retailer has been cutting costs in stores, including by adjusting employees’ hours, he explained, to fuel its e-commerce business. “We thought it would take a little bit longer to get here,” he added, but the pandemic has accelerated these adjustments. 

Its store and distribution expenses were down almost 18%, while marketing costs were down 16%. 

Abercrombie reported net income during its fiscal second quarter ended Aug. 1 of $5.5 million, or 9 cents per share, compared with a loss of $31.1 million, or 48 cents a share, a year ago. 

Excluding one-time charges, the retailer earned 23 cents a share, better than the 83-cent loss expected by analysts, based on Refinitiv data. 

While its net sales fell to $698.3 million from $841.1 million a year ago, that was also still better than the $658.44 million expected by analysts. 

“These numbers are actually better than the prior year when the company made a loss at both the operating and net level,” GlobalData Retail Managing Director Neil Saunders said. 

“Some of this is the result of a tight grip on costs and some is a function of better margins resulting from lower inventory and less discounting,” Saunders said. “We also believe the past corrective actions of management – especially exiting underperforming retail locations – have been very beneficial.” 

Like a number of other retailers, including Kohl’s and Victoria’s Secret parent L Brands, Abercrombie is calling out a slower-than-normal start to the back-to-school season this year due to the pandemic and the looming uncertainty around how classes will be instructed. Some parents are expected to spend more money on new electronics for home schooling than on apparel. 

Chief Executive Fran Horowitz told CNBC she expects back-to-school sales could drag all the way into October, as shoppers spread out their spending this fall. She said the same trend will likely emerge around the holidays, referring to it as a “flattening of the curve.” 

“Maybe the peak [around] Black Friday isn’t as big, but there is still a lot of opportunity in December to do a lot of business,” she said. 

Abercrombie has not offered an outlook for the remainder of the year. Its stock, which has a market value of about $759 million is down about 28% year-to-date.