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Hollister growing despite weak economy

By Tiffany Montgomery
May 20, 2008 6:59 AM

I'm catching up on the Abercrombie & Fitch first quarter earnings conference call from last week.

The overall message from the call is that the company, one of the surf industry's biggest competitors, is investing heavily in its business despite the economic downturn. It also refuses to cut prices to drive sales and is adamant about not doing anything to hurt the image of its brands in the long term.

Company executives spoke a lot about plans for Hollister, Abercrombie & Fitch's primary domestic store growth driver in the near term. Here are some details.

New store performance: The Hollister brand continues to strengthen. Stores open less than one year exceed initial sales targets and produce a store contribution rate better than or equal to the existing chain.

New store count: In the first quarter, Hollister opened 10 new stores. For the full year, Hollister will open 66 stores, including four in malls in the United Kingdom in October.

Body product: Hollister will roll out body product lotions, etc. chain-wide for back to school.

Online sales: Total company online sales increased 44 percent in the first quarter. Hollister accounted for 60 percent of that growth. International sales online were a big factor. "We're starting to see significant awareness with regards to Hollister globally," said Mike Nuzzo, Abercrombie & Fitch vice president of finance.

International: The company for the first time is linking Hollister with Abercrombie & Fitch. On the construction barricades at new international stores the signs say "Hollister by Abercrombie & Fitch."

Domestic: The company believes Hollister has a lot of growth potential at "A" malls and is looking for the right space at upper tier shopping centers.

Flagship: A flagship in New York will open in early 2009 with "new and exciting store elements," the company said. With all company flagships, the company is focused on creating "a jaw dropping experience."

Interesting company-wide information

Tourist locations: Because of the weak dollar, company stores in New York, Miami, Orlando, Las Vegas and San Francisco performed well.

Financials: Same-store sales fell 3 percent but earnings per share grew 6 percent. The company said it achieved this by the strength of its gross margin and by cutting operating costs. Total sales grew 8 percent to $800.2 million. Online sales grew 44 percent to $62.5 million. Net income rose 3 percent to $62.1 million. Gross profit rate was 66.8 percent.

International: The company believes the international business will comprise 50 percent of total company sales in the next seven to 10 years.

Strong categories: male tops, female fleece and denim and fragrance for both genders.

Weak categories: female knit tops and pants, woven shirts for both genders.

Capital expenditures: $410 million to $415 million this year. $15 million on major store remodels, $50 million on store refresh, $73 million on home office infrastructure.

A final quote: "While others may see retrenchment as the only option to weather a prolonged downturn, we have the financial strength to invest and maintain our long term growth plan." Mike Kramer, CFO.

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