How Much Will Abercrombie & Fitch’s Revenue Grow In The Next 3 Years?

Abercrombie & Fitch (NYSE:ANF) has had a mixed couple of years. The company saw its revenue fall by nearly 5% between 2015-2016, mainly due to a 5% decrease in comparable sales. The poor performance was largely due to an 11% decrease in comparable sales for Abercrombie. However, robust comparable sales for Hollister helped boost its top line in 2017, with revenue growing at just under 5%. Further, A&F’s sustained efforts in growing its global footprint, coupled with the potential of Gilly Hicks, digital, and omnichannel capabilities should provide for decent medium term opportunity. Below we take a look at what to expect from Abercrombie & Fitch in the next three years.

Based on recent market trends and the activewear potential, we forecast Abercrombie & Fitch to report 2-3% annual revenue growth in the next three years, from $3.5 billion in FY 2017 to about $3.7 billion in FY 2020. We have summarized our expectations on our interactive dashboard, Abercrombie & Fitch’s Revenue Outlook For the Next 3 Years, through FY’18 and FY’20. If you disagree with our forecasts, you can change the key drivers for the segment to gauge how changes will impact its expected revenue. Below we take a look at the key drivers for this revenue stream.

Factors That May Impact Future Performance

1. Robust Digital Sales: The growth of e-commerce highlights the basic shift from brick-and-mortar stores to the online platform, and retail companies have to welcome this trend in order to remain relevant. ANF has embraced this change by ensuring local and regional fulfillment capabilities across the U.S. and around the globe. As a result, the company has consistently invested to grow its DTC (Direct To Consumer) segment, and has been rewarded as a result. Additionally, mobile plays a huge part in the digital growth, representing over 75% of the total DTC traffic. Further, ANF’s sustained efforts to improve its omnichannel capabilities, store-centric functionalities, and inventory optimization should not only drive more traffic to the stores but also ensure increased purchases. Moreover, these efforts should ensure a sustained growth in digital sales.

2. Potential For Global Growth: While A&F has been focusing on optimizing its store footprint in North America, it expects growth from international markets through expansion. The company sees a $1 billion opportunity across all channels in the EU. At present, A&F has 120 stores in the region. Consequently, its focus in the region is on improving penetration, moving to smaller and more productive stores, and building a more local customer base. Further, its partnership with wholesalers, like ASOS, NEXT, and Zalando, should boost online sales growth. The company estimates about a $500 million opportunity in China. The company currently has only 28 stores in the country, and wishes to address this opportunity by focusing on growing its digital business, through its partnership with Alibaba and improving its store count.

3. Gilly Hicks Potential: Abercrombie has witnessed robust growth in its Swim and Intimates line ever since it was relaunched globally at the beginning of 2017. The Gilly Hicks brand continues to attract new customers to the Hollister brand, and seems poised for success in the future. As competitor American Eagle’s lingerie and activewear brand, Aerie, has been its best-performing segment for a while now, we believe the market has strong growth potential.

4. Hollister Brand To Drive Growth: The brand has been the only bright spot for the company in recent years with an increase seen across genders and channels. Further, the brand also launched several marketing campaigns and programs to not only better understand the ever changing trends and preferences, but also remain close to its core audience. We expect these initiatives to benefit the brand and drive solid medium term growth. As a result, we expect revenue from this brand to grow by nearly 5% annually to about $2.4 billion in 2020.

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