🦌 Abercrombie's sub-brand secret

Wednesday, November 25, 2020 by Snacks
_Years of posing outside Abercrombie paid off_

Years of posing outside Abercrombie paid off

Yesterday’s Market Moves
Dow Jones
30,046 (+1.54%)
S&P 500
3,635 (+1.62%)
Nasdaq
12,037 (+1.31%)
Bitcoin
$19,014 (+3.55%)

Hey Snackers,

In case you're lacking creative gift ideas: British Airways is now selling drinks trolleys, First Class slippers, and champagne flutes.

Stocks surged yesterday on a feel-good duo: promising vaccine news and less political uncertainty (the Trump admin approved the start of a formal transition). The Dow index surged above 30K for the 1st time ever (#DowThirtyThow).

BTW: We won't have a newsletter tomorrow since the market's closed for Thanksgiving. We'll be back in your inbox on Friday!

Model

1. Abercrombie and American Eagle win on "the brand behind the brand"

Stop trying to make Fitch happen... Abercrombie & Fitch stock (yep, that's a thing) jumped after its earnings beat Wall Street's expectations. You probably remember Abercrombie as the place where you took pictures with shirtless "models" as a middle schooler, or bought hoodies for your foreign cousin. Abercrombie stock has plunged 70% from its 2008 peak, but is up nearly 30% this week. How the moose performed last quarter:

  • Online sales jumped 43%, and made up nearly half of total sales in the past 12 months.
  • Overall sales fell 5%, but Abercrombie managed to notch a $42M profit after cutting store and distribution expenses.

Smells like Abercrombie in here... but that's an illusion. Abercrombie's sub-brand Hollister actually made up 58% of total sales last quarter. Hollister is the beach bum California cousin to Abercrombie's East Coast college bro. Hollister's sub-sub-brand Gilly Hicks boosted demand, thanks to its WFH-friendly loungewear and bralettes. Other winning sub-brands:

  • Aerie sales soared 34% last quarter and it posted record profits, while parent brand American Eagle's sales fell 11%.
  • Free People was Urban Outfitter's best-performing division last quarter and makes up over 20% of Urban's sales.
  • Old Navy makes up over half of Gap's sales.
THE TAKEAWAY

Sub-brands are secret growth sauce... These "secret" subs are pulling in more $$$ and performing better than their parents. Sub-brands help companies tap into new customer segments — think Victoria's Secret PINK (casual/teen-friendly) vs. full-on sexy VS. Companies can apply learnings from their subs to help the parent — just like American Eagle intro’d new loungewear to mimic Aerie.

Yum

2. Dine-tech startup Toast pulls off a pandemic pivot (and nearly doubles in value)

Crispiest company name yet... Toast is what you're using to pay for your chicken gyro at the local Greek place (don't forget to tap 20% tip). Toast's point-of-sale software and hardware is made specifically for restaurants — so it got extra burnt in 2020:

  • The Good: Toast's sales more than doubled in 2019 as tens of thousands of new eateries signed up.
  • The Bad: When lockdowns hit in March, Toast's restaurant sales fell 80% in most markets.
  • The Ugly: In April, Toast laid off half its employees (1.3K people) as restaurants shuttered.

Think fast... Toast was expected to be a big pandemic loser, but it quickly pivoted from its dine-in focus to a takeout focus. It added pandemic-friendly services like: delivery, online ordering, e-gift cards, and loans to cash-strapped eateries. It gave its customers a month of free access to digital services, helping them bounce back from dine-in closures.

  • The Comeback: Toast is now reportedly valued at $8B, up from its $4.9B valuation in pre-lockdown February.
THE TAKEAWAY

Businesses want a Swiss Army knife solution... The more "all-in-one" a product is, the better. Restaurants don’t want different companies handling each business function. That's why: in addition to payment processing, Toast offers everything from sales reports, to inventory management, and payroll. Its publicly-traded rival Square also flaunts an all-in-one product — and its stock has more than tripled in value this year.

What else we’re Snackin’

  • Spicy: Spice legend McCormick is buying hot-sauce maker Cholula for $800M. Demand for spicy condiments is at record highs (ey).
  • Checkmate: Netflix says "The Queen's Gambit" drew a record 62M household viewers in less than a month.
  • Frenzy: Amazon is encouraging holiday shoppers to pick up packages at its physical retail locations to reduce the delivery crunch.
  • Bling: Tiffany beat quarterly profit expectations thanks in part to a 70% jump in sales in China. BTW: LVMH is still putting a ring on it.
  • Geek: Best Buy's US online sales nearly tripled last quarter compared to the same period last year.
  • PAT: Sports tech company Hyperice (think: portable massage guns) lands an NFL deal and inches closer to a $1B valuation.

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Wednesday

  • Earnings expected from Deere

Disclosure: Authors of this Snacks own shares of Amazon

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