Abercrombie & Fitch: TikTok has ‘absolutely’ contributed to sales, CEO says

Abercrombie & Fitch CEO Fran Horowitz joins Yahoo Finance Live to discuss company earnings, the disparity between Abercrombie & Fitch and Hollister, consumer spending, inflation, and the outlook for its brands.

Video Transcript

RACHELLE AKUFFO: For more on the state of retail, our very own Brian Sozzi is here. Brian, take it away.

BRIAN SOZZI: Hey, Rachelle. Yes, Abercrombie is out with its latest earnings. The company beat on revenue, but missed on profits. Let's get right to it with Abercrombie and Fitch CEO Fran Horowitz. Fran, always nice to get some time with you. Earnings call done. You heard a little bit of our setup here, a more cautious consumer. What are you seeing from shoppers when they cross that lease line in Hollister and Abercrombie?

FRAN HOROWITZ: Hey, Brian, good to be here with you. So we were pleased with our fourth quarter results on the top line. Finishing up 5% on a constant currency basis was a strong ending to the year. Our A&F business continues to be strong. We made a lot of progress on Hollister last year. So what the consumer is telling us is that they have a choice on where to shop, and they were choosing us for the fourth quarter. We're going to stay focused on our product, our voice and experience for '23 and get them to continue to shop with us.

BRIAN SOZZI: How focused are you right now in an environment with so much uncertainty on promotions, maybe offering some more opening price points to shoppers?

FRAN HOROWITZ: So fourth quarter is always the most promotional time of the year. We head into each quarter, ready to compete, but we really focus our promotions on our own product. We don't concern ourselves what others are doing. We meet with the teams on a weekly basis and make sure that what's working, what's not working, we're addressing very currently.

BRIAN SOZZI: Talk to us about the individual brands, Abercrombie and Hollister. There was some sequential progress at Hollister, but the Abercrombie business continues to be on fire. Why is that the disparity between the two brands?

FRAN HOROWITZ: Yes, So the Abercrombie customer-- I mean, the Abercrombie brand itself had a fantastic year. We're so excited about that brand turnaround. You've been on this journey with me for a long time, and it's been awesome to see this consumer responding. He and she did not seem to feel as pressured by the inflation as the Hollister consumer did. About midway through last year, that consumer, the Hollister consumer, who's in a different demographic than the Abercrombie consumer, had a lot more competition for the wallet. These teens and their parents had felt the inflation impacts a bit more. But again, as we dug in and found that we own some of that and we got our assortments better aligned for fourth quarter and got into those cargos and those dresses that they were looking for, we saw sequential improvement.

BRIAN SOZZI: What is working right now in the Abercrombie brand in terms of style? I go to the site, Fran, and it takes me back to when I was in high school.

FRAN HOROWITZ: Well, what's so awesome, right, is the brand has just diversified beyond jeans and t-shirts. We are serving so many wearing occasions for our consumer. They love their 96 hours-- I talk about that quite a bit-- in everything that they're doing on those weekends with their friends, whether that's for weddings, bachelorette parties, showers. So from a special occasion perspective, we're there for them. Now they're coming to us for back to work. So now a lot of the offices are opening up again. We are doing incredibly well with our bottoms business. In fact, we had our best year ever in pants. She is wearing pants to the office, and she's wearing them out on date night.

BRIAN SOZZI: Well, you're a merchant at heart, Fran. What is the new wear-to-work attire for men and women?

FRAN HOROWITZ: It's much more casual than it used to be. But we still have to look sophisticated and put together. We have an amazing pant called the Sloan pant that has just taken off. People are named-- we named and claimed it, as you know. And on TikTok, you can see everybody talking about it. So she's wearing a nice pair of-- I'll call them dress pants, trousers, with a bodysuit and a jacket over her cardigan. And they're also wearing jeans. So depending upon where you're working and what you're doing, we can outfit you for it.

BRIAN SOZZI: You mentioned TikTok, and you and I have talked about this in the past, how far that Abercrombie brand has come on TikTok. Is it translating to sales, and then what's your strategy there this year?

FRAN HOROWITZ: Oh, absolutely. Listen, our customer is completely digital, whether that's Hollister or Abercrombie. And they're learning about their product from their friends. Today, our customers trust their friends more than they trust a company themselves, right? So they're seeing something called user generated content. And the customer gets on there and talks about their hauls, talks about what they're wearing, what they're enjoying. And TikTok continues to be an avenue for them. But it's all digital channels, Brian, that are also supporting that, whether it's Instagram, Facebook reels, all of them are working for our consumer.

BRIAN SOZZI: Fran, I barely know how to use some of this stuff. I just figured-- I'm still figuring out TikTok. I never wanted to be that old guy, but I guess here I am. But back on Hollister. The sequential improvement-- how do you go upon continuing that in the first quarter or spring break season coming up with a shopper, to your point, that is more lower income and is concerned about their budget?

FRAN HOROWITZ: Yeah, so that consumer obviously has to make some tough choices. But the most important thing is that the team has done so much hard work. When we left the second quarter disappointed with our results, we dug in and we really got much closer to our customer. So for example, denim. Denim is an important category to us, but he and she were telling us they wanted cargo pants, or they wanted dresses. We didn't have enough of those for the second quarter to offset the business.

And as we headed into the fourth quarter, we chased it. We went after them pretty aggressively and made sure that we were in stock in what they were looking for. So as we head into spring break, same applies. Much closer to the customer that we've been. What's great, Brian, is that chase is back in our vocabulary for Hollister. That was one of the toughest things for the teen market last year with the supply chain, was not being able to read and react to your business as much as we're normally used to doing.

BRIAN SOZZI: Do you see any of the inflationary costs that you've been battling the past year and a half, cotton costs, freight costs, is any of that starting to ease?

FRAN HOROWITZ: Yeah, the freight costs for sure. That's a much more immediate push that we're seeing. We're feeling those effects immediately. Cotton is a little bit different. Cotton is a much more longer lead time. So our expectation is to see some of those costs abate in the back half.

BRIAN SOZZI: There's something different about the Abercrombie brand, Fran. I think it speaks to the heart of you trying to reboot or reinvent the culture at the company. I see it on TikTok. I see it on the homepage. Talk to investors about the efforts you have been undertaking there to change the perception of this brand, and what else are you working on?

FRAN HOROWITZ: Oh, Brian, I am-- you're tugging at my heart strings. I'm incredibly proud of the work that the team has been able to do to make us a much more inclusive and diverse company than we ever were in the past. That goes from sizing that we're doing, including smaller sizes, larger sizes, and whole inclusivity opportunity in sizing, as well as diversity in our associates. Gosh, the work is endless. All of our impact partners that we're working with have helped us also understand our consumer.

If you look at somebody like an Abercrombie brand, we're going to launch a collection that's always on. It's not just Black History month for one month, but it's actually Black History all year long. And we're going to launch an always-on collection for that. So I could go on and on and on. There's lots of things, lots of exciting things happening. And as the year comes on, we'll continue to share those with you.

BRIAN SOZZI: Really good initiatives there, Fran. Abercrombie and Fitch CEO Fran Horowitz, it's always great to get some time. We'll talk to you soon.

FRAN HOROWITZ: Thanks, Brian. Take care.