Abercrombie expects a strong holiday quarter as growth run continues

• Abercrombie & Fitch raised its full-year guidance and said it is expecting a strong holiday shopping season.
• The apparel company, which also runs Hollister, had struck a cautious tone earlier this year, but now expects to end its fiscal year on a high note.
• During the quarter, Abercrombie's former CEO, Mike Jeffries, was arrested on charges of sex trafficking, but the scandal didn't appear to affect sales.

Abercrombie & Fitch isn't giving up its crown anytime soon. 

The apparel company issued strong holiday guidance on Tuesday after posting its sixth straight quarter of double-digit sales growth and another quarter of results that topped expectations. The recent arrest of the company's former CEO, Mike Jeffries, on charges of sex trafficking did not appear to affect results.

Here's how Abercrombie did in its fiscal third quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

• Earnings per share: $2.50 vs. $2.39 expected
• Revenue: $1.21 billion vs. $1.19 billion expected

The company's reported net income for the three-month period that ended Nov. 2 was $131.98 million, or $2.50 per share, compared with $96.2 million, or $1.83 per share, a year earlier. 

Sales rose to $1.21 billion, up around 14% from $1.06 billion a year earlier. 

For the all-important holiday shopping quarter, Abercrombie is expecting sales growth of 5% to 7%, ahead of the 4.8% growth that analysts had expected, according to LSEG. For the full year, the company is expecting sales to rise between 14% and 15%, higher than the 12% to 13% range it previously anticipated. That new outlook is higher than the 12.1% growth analysts had expected, according to LSEG. 

Despite the better-than-expected guidance, Abercrombie shares dropped about 4% in intraday trading. Given the company's strong performance over the last couple of years, it's gotten harder and harder to impress Wall Street, and its quarterly revenue only just beat expectations. Further, while its holiday sales guidance was higher than expected, it would represent a significant deceleration from the 21% growth it saw in the year-ago period.

Still, in a news release, CEO Fran Horowitz struck a positive note, leaving out the concerns she'd mentioned in the previous quarter about the "increasingly uncertain environment." 

"With broad-based growth across regions and brands, we continue to execute at a high level, leveraging our regional playbooks and operating model. Each of our regions grew double-digits in the quarter, with the Americas growing 14%, EMEA growing 15% and APAC growing 32%," said Horowitz.

The Abercrombie and Hollister brands posted comparable sales growth of 11% and 21%, respectively. Horowitz noted the strong performances lapped growth of 26% for Abercrombie and 7% for Hollister last year.

During the quarter, the company drove strong full price sales, but those margin gains were largely offset by "higher freight costs" due to increased rates and air usage, said chief operating officer and outgoing finance chief Scott Lipesky. During the quarter, the company relied more heavily on pricey air freight to get product into stores "to mitigate potential shipping delays from longer and more inconsistent ocean transit times and the East Coast port strike," said Lipesky.

Under Horowitz's direction, Abercrombie has become one of the retail industry's biggest winners. As it laps the strong performance it posted last year, it's continuing to build on those numbers and said Tuesday it's already seen a strong start to the holiday shopping season.

To keep gaining momentum, Horowitz is looking to international markets for growth. Abercrombie has also gone into new categories, such as its wedding collection and recent partnership with the NFL. It's also focused on developing its Hollister chain, which caters to Gen Z shoppers, and ensuring the brand is differentiated from Abercrombie, which caters to millennials. 

During the quarter, sales at Hollister were up 14%, accounting for nearly half of all revenue. 

As retailers gear up for Black Friday and the duration of the holiday shopping season, it appears as if some of the dim sentiment clouding the back half of the year has evaporated after President-elect Donald Trump's victory. 

For example, Abercrombie and Dick's Sporting Goods – which both reported earnings on Tuesday – struck cautious tones when reporting earnings over the summer, but that sentiment was replaced with bullishness now that the election is over. 

Consumer sentiment has improved since Trump's election and analysts are hopeful that certainty in the election results – regardless of who won – will be a boon for spending.

Many retailers have been concerned about the impact that Trump's proposed tariffs plan will have on prices and margins, but the company said Tuesday only between 5% and 6% of imports are coming from China. Its exposure to Mexico and Canada, which could face 25% tariffs once Trump takes office, is "immaterial," the company said.