Business news : Abercrombie challenged in Q1, lowers 2013 outlook
New Albany, Ohio, May 24, 2013: Abercrombie & Fitch Co. (ANF) today reported unaudited first quarter results which reflected a net loss of $7.2 million and net loss per basic and diluted share of $0.09 for the thirteen weeks ended May 4, 2013, compared to a net loss of $21.3 million and net loss per basic and diluted share of $0.25 for the thirteen weeks ended April 28, 2012.
Mike Jeffries, Chief Executive Officer and Chairman of the Board of Abercrombie & Fitch Co., said:
"Our results for the first quarter reflect a sixteen cent improvement in earnings per share versus last year, including better than expected gross margin rate improvement and tight expense management.
The first quarter proved to be more difficult than expected on the top-line due to more significant inventory shortage issues than anticipated, added to by external pressures.
However, comparable sales trends progressively improved during the quarter and with the inventory headwinds largely behind us, we expect to see continued sequential improvement in the second quarter. We are also making good progress on our cross-functional initiatives, which we expect will generate substantial operating margin improvement on a sustainable, long-term basis."
First Quarter Summary
Net sales for the thirteen weeks ended May 4, 2013 decreased 9% to $838.8 million from $921.2 million for the thirteen weeks ended April 28, 2012. Total U.S. sales, including direct-to-consumer sales, decreased 17% to $534.9 million. Total international sales, including direct-to-consumer sales, increased 10% to $303.9 million. Total Company direct-to-consumer sales, including shipping and handling, decreased 10% to $132.7 million.
Due to the 53rd week in Fiscal 2012, first quarter comparable sales are compared to the thirteen week period ended May 5, 2012. The effect of the calendar shift was not material to total sales.
Total comparable sales for the quarter, including direct-to-consumer sales, decreased 15% with comparable store sales decreasing 17% and comparable direct-to-consumer sales decreasing 6%. Comparable sales for the quarter, including direct-to-consumer sales, decreased 14% for the U.S. and decreased 16% for international. Within the quarter, comparable sales were weakest in February and March.
By brand, comparable sales, including direct-to-consumer sales, decreased 13% for Abercrombie & Fitch, decreased 5% for abercrombie kids, and decreased 18% for Hollister Co. Total sales by brand were $325.0 million for Abercrombie & Fitch, $73.0 million for abercrombie kids and $421.2 million for Hollister Co.
The gross profit rate for the first quarter was 65.9%, 720 basis points higher than last year`s first quarter gross profit rate. The increase in the gross profit rate was primarily driven by a benefit from a higher mix of spring merchandise selling and a decrease in product costs.
Stores and distribution expense for the first quarter was $449.1 million, down from $455.7 million last year. As a percentage of sales, expense savings in store payroll, repairs and maintenance, and other stores and distribution expense were more than offset by the deleveraging effect of negative comparable sales.
Marketing, general and administrative expense for the first quarter was $118.8 million, a 2% increase compared to $116.9 million last year. The increase in marketing, general and administrative expense was due to increases in IT and outside services, partially off-set by decreases in incentive compensation and other compensation related expenses.
The effective tax rate for the first quarter was a benefit of 53.7% compared to a benefit of 29.1% last year. The current year rate reflects a net reduction in reserves resulting from the settlement of tax audits. The Company now expects its full year tax rate in the range of 33% to 34%.
During the first quarter of Fiscal 2013, the Company repurchased approximately 350,000 shares of its common stock at an aggregate cost of approximately $16.3 million.
The Company ended the first quarter with approximately $555.9 million in cash and cash equivalents and borrowings under the Term Loan Agreement of $146.3 million compared to $321.6 million in cash and cash equivalents, $37.9 million in marketable securities and no borrowings last year.
The Company opened four international Hollister chain stores, including its first store in Australia, and a combined Hollister and Gilly Hicks outlet store in the UK, during the quarter.
On May 21, 2013, the Board of Directors declared a quarterly cash dividend of $0.20 per share on the Class A Common Stock of Abercrombie & Fitch Co. payable on June 18, 2013 to shareholders of record at the close of business on June 3, 2013.
Based on a modestly more cautious view for the remainder of the year, the Company now expects full year diluted earnings per share in the range of $3.15 to $3.25. This projection assumes comparable sales, including direct-to-consumer to be slightly down for the balance of the year. With regard to the second quarter of Fiscal 2013, the Company expects diluted earnings per share in the range of $0.28 to $0.33. Guidance for all periods does not include the impact of potential impairment and store closure charges.
The Company continues to anticipate opening international Abercrombie & Fitch flagship locations in Seoul and Shanghai, as well as approximately 20 international Hollister chain stores throughout the year. In addition, the Company now anticipates opening a small number of international multi-brand outlet stores during the year. The Company continues to expect to close approximately 40-50 stores in the U.S. during 2013, through natural lease expirations.
Based on current new store plans and other planned expenditures, the Company continues to expect total capital expenditures for Fiscal 2013 to be approximately $200 million, predominately related to new stores and investments in IT initiatives.
At the end of the first quarter, the Company operated a total of 1,053 stores. The Company operated 264 Abercrombie & Fitch stores, 144 abercrombie kids stores, 481 Hollister Co. stores and 20 Gilly Hicks stores in the United States. The Company operated 19 Abercrombie & Fitch stores, five abercrombie kids stores, 112 Hollister Co. stores and eight Gilly Hicks stores internationally. The Company operates e-commerce websites at www.abercrombie.com, www.abercrombiekids.com, www.hollisterco.com and www.gillyhicks.com.
Source Press release Abercombie and Fitch