At the Jefferies 2017 Global Consumer Conference, which was held this week in Nantucket, Massachusetts, Abercrombie & Fitch CEO Fran Horowitz provided a recap of the company’s first-quarter performance, along with CFO Joanne Crevoiserat and VP of Investor Relations Brian Logan. The team also provided an outlook on the remainder of 2017 and an update on the company’s strategic initiatives. Below are our key takeaways from the presentation.

Financial Results for 1Q17

Management reported that overall results for the first quarter were in line with expectations. The company’s net sales were down 4% and gross margin was pressured by steep traffic headwinds and more promotional activity than had been planned. The operating loss for the quarter was $70 million, compared with a $55 million loss in the same quarter last year. The net loss per diluted share was $0.91 compared with a $0.59 in the year-ago quarter. Comparable sales were in line with expectations and have improved sequentially over the past few quarters across all brands, geographies and channels. In the quarter, Hollister’s comp sales were up 3%, Abercrombie’s comp sales were down 10% and the company’s overall comp sales were down3%. Management reported that the company ended the first quarter with $421 million in cash, with $258 million in gross borrowings outstanding compared with $293 million in the year-ago period. The company expects to generate the cash needed to operate the business, meet its expenses and maintain the dividend.

Outlook for the Full Year

Abercrombie & Fitch expects comp sales to remain challenging for the full year, and to see trend improvements in the second half of the year. The company expects the gross profit rate for the year to be slightly lower than last year’s adjusted rate of 61%. In terms of operating expenses, the company expects to deliver $100 million in expense reductions. The company expects operating expenses to be down 3% from last year, with 65% of the reduction occurring in the second half of the year.

Channel Optimization

Since 2010, Abercrombie & Fitch has closed approximately 400 stores in the US and remodeled nearly 150 stores. Over the same time period, the company has invested $400 million in web and mobile experiences and omnichannel and CRM capabilities.

Source: abercrombie.com.hk

For 2017, the company expects capital expenditures to be nearly $100 million. Of that, the company plans to invest $70 million in new stores and store renovations. The company expects to remodel 40 Hollister stores, including 10 downsizes. It plans to remodel seven Abercrombie & Fitch prototype stores, with four downsizes, and to open seven new full-price stores and two new outlet stores. By the end of the year, the company expects to close 60 stores in the US through natural lease expirations. Approximately 50% of the company’s US leases expire by the end of 2018. Abercrombie & Fitch expects to spend $20 million to enhance its digital foundation to support the international rollout of its omnichannel capabilities.

Strategic Initiatives

The company reported that overall results were in line with the plan and that Hollister continues to demonstrate potential.Management characterized the company as a work in progress. Abercrombie & Fitch is emphasizing its branding story “whenever, wherever and however” customers choose to engage with its brands. The omnichannel strategy is central to this branding. The company reported that direct-to-consumer sales accounted for 27% of total sales in the first quarter of 2017, up from 24% in the prior-year period. The company has increased its omnichannel offerings to include a number of services and features, including purchase online, pick up in store; reserve in store; order in store; online and in-store returns;and a shared cart between mobile and desktop devices. Loyalty programs are another strategic initiative for engaging with customers. The company rolled out a loyalty program for Abercrombie & Fitch called Club Cali,which is adding approximately 250,000 members per month. The Club Caliloyalty program ended the first quarter of 2017 with 5.7 million members. The company is also using social media to engage with consumers. Hollister featured a “This is summer”campaign on its YouTube channel, which had over 5 million followers. During the first quarter, Hollister also launched a surf game on MobilePlay that received 27 million social media impressions across the platform. Management reported that it is also updating its store prototypes to a smaller-format store with updated fixtures reminiscent of the company’s history. The first Abercrombie &Fitch prototype store opened in the first quarter of this year. The company reported that the store has generated higher productivity and that it plans to rollout six more prototype stores in 2017. Management highlighted that its franchise and wholesale partnership collaborations—including with franchise partners GrupoAxo and Majid Al Futtaim and wholesale partners ASOS, Next, Zalando and Zalora—are helping Abercrombie & Fitch provide new platforms for reaching consumers. For example, the company projects that its new partnership with e-commerce retailer Zalora will help Abercrombie & Fitch reach more than 600 million consumers in Southeast Asia.