Abercrombie & Fitch (NYSE: ANF) reported Q3 EPS of $0.76, $0.76 better than the analyst estimate of $0.00. Revenue for the quarter came in at $820 million versus the consensus estimate of $726.42 million.

Continues progress on store network optimization; Announces early exit of four more flagships through lease transfers and sublease, reducing liabilities and bringing fiscal 2020 flagship closures to seven

A summary of results for the third quarter ended October 31, 2020 as compared to the third quarter ended November 2, 2019:

• Net sales of $820 million, down 5% as compared to last year, reflecting the adverse impact of COVID-19 on store sales.
• Digital net sales increased 43% to $382 million reflecting robust growth in every month of the quarter.
• Gross profit rate improved 390 basis points to 64.0% on higher average unit retail and lower average unit cost, benefiting from inventory shrink favorability of approximately 100 basis points and changes in foreign currency exchange rates of approximately 90 basis points.
• Operating expense leveraged, reflecting an ongoing focus on tightly managing costs. Operating expense as a percentage of sales decreased 160 basis points and 120 basis points on a reported and adjusted non-GAAP basis, respectively.
• Operating income improved to $59 million and $65 million on a reported and adjusted non-GAAP basis, respectively, as compared to $14 million and $25 million last year, on a reported and adjusted non-GAAP basis, respectively.
• Net income per diluted share improved to $0.66 and $0.76 on a reported and adjusted non-GAAP basis, respectively, as compared to net income per diluted share last year of $0.10 and $0.23 on a reported and adjusted non-GAAP basis, respectively.
• Generated positive operating cash flows of $63 million during the third quarter ended October 31, 2020, ending the quarter with $813 million of cash and equivalents and liquidity of approximately $1.2 billion.

Fran Horowitz, Chief Executive Officer, said, “I am proud of our global teams and partners. Reflecting your ongoing hard work and perseverance, we delivered our best third quarter operating income in eight years. Results were fueled by 43% year-over-year digital sales growth and sequential sales improvements in our global store base. Updated product and marketing resonated with existing and new customers across brands and regions. Combined with a focused inventory management strategy, we expanded gross profit rate significantly while continuing to tightly manage expenses, leading to operating margin improvements over last year.”

”We are also pleased to announce the early exit of four additional flagship locations by the end of January 2021. This is in addition to the three previously announced fiscal 2020 natural lease expirations. With these seven closures, we should end the year with eight operating flagships down from fifteen at the beginning of the year. These actions align with our multi-year strategy of reducing dependence on tourist-driven locations to reposition within key markets and deliver a better omnichannel experience to our local customer.”

“We are encouraged by quarter-to-date results, including ongoing strong digital demand, with our customers responding favorably to new product and messaging. However, this is tempered by uncertainty regarding the potential for increased COVID-related store restrictions and our expectation for elevated shipping, handling and freight costs. As we approach the peak holiday selling period, inventories remain well-controlled and we have thoughtful plans in place to help us adapt to changing business conditions. As we have done since the start of the pandemic, we will utilize our proven playbooks to remain agile and provide the best omnichannel experience for our customers.”

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