Net sales for the thirteen weeks ended November 2, 2013 decreased 12% to $1.033 billion from $1.170 billion for the thirteen weeks ended October 27, 2012.
Total comparable sales for the quarter, including direct-to-consumer sales, decreased 14% with comparable U.S. sales decreasing 14% and comparable international sales decreasing 15%. Total direct-to-consumer comparable sales increased 11% for the quarter. Third quarter comparable sales are compared to the thirteen-week period ended November 3, 2012.
For the third quarter, the Company expects to incur pre-tax charges in the aggregate of approximately $90 million - $100 million related to its restructuring plans for the Gilly Hicks brand (as discussed below), non-cash impairment charges related to other stores, and charges related to the Company's profit improvement initiative. Excluding these charges, the Company expects to report adjusted non-GAAP earnings per diluted share at the higher end of prior non-GAAP guidance of $0.40 to $0.45. This expectation now reflects lower sales and gross margin rate than anticipated offset by expense and other favorabilities. Pending finalization of the material charges mentioned above, the comparable U.S. GAAP earnings per share figure is not available at this time, but will be available when earnings are released on November 21, 2013.
Based on a projected low double digit decrease in comparable sales for the fourth quarter, the Company expects full year adjusted non-GAAP earnings per diluted share to be in the range of $1.40 to $1.50. This projection also assumes significant gross margin rate erosion in the fourth quarter as the Company clears through excess inventory.
The guidance for the full year does not include charges related to the Company's restructuring plans for the Gilly Hicks brand, other impairment and store closure charges, charges related to the implementation of the Company's profit improvement initiative, or the effect of any additional share repurchases.
Mike Jeffries, Chief Executive Officer and Chairman of the Board of Abercrombie & Fitch Co., said:
"Our results for the third quarter reflect continued
top-line challenges, with overall spending among younger consumers
remaining weak. Until we have seen a clear trend improvement, we are
continuing to take a cautious approach into the fourth quarter and are
working to end the year with appropriate levels of fall carryover
inventory.
During the quarter, we completed our long-term strategic review, and believe that we now have a clear roadmap for sustainable growth in sales, profitability and return on invested capital. We look forward to sharing the results of our review in our analyst meeting."
The Company will host an analyst meeting to discuss the results of its long-term strategic review on Wednesday, November 6, 2013. A live webcast of the analyst meeting will also be accessible under the "Investors" section of the Company's website at www.abercrombie.com at 8:30 AM, Eastern Time.
Gilly Hicks Update
The Company also announced that it plans to close all of its stand-alone Gilly Hicks stores. The Company expects to substantially complete the closures by the end of the first quarter of Fiscal 2014. Store closures in Europe are subject to applicable notice and consultation provisions. The Company will continue to offer Gilly Hicks branded intimate apparel through its Hollister stores and direct-to-consumer business.
Mike Jeffries said:
"In connection with our long-term strategic review,
we have decided to focus the future development of the Gilly Hicks brand
through Hollister stores and direct-to-consumer channels. This decision
reflects the successful pilot of selling Gilly Hicks branded intimates
in Hollister stores. As a result, we have made the determination to
close our stand-alone Gilly Hicks stores. We believe it is critical to
focus our efforts and resources where we have the greatest opportunities
to drive profitable growth for our brands."
The Company estimates that it will incur pre-tax charges of approximately $90 million, including approximately $40 million of non-cash impairment charges and approximately $50 million of lease-related, severance and other charges. The Company expects the charges to be substantially recognized in the third and fourth quarters of Fiscal 2013 and the first quarter of Fiscal 2014. The Company also estimates that the net cash outflow associated with the Gilly Hicks store closures, prior to any associated tax benefits, will be approximately $55 million. These estimates are based on a number of significant assumptions and could change materially.
Excluding the above-referenced charges, the Company anticipates that its Gilly Hicks operations will incur a pre-tax loss of approximately $30 million in Fiscal 2013. As a result of the store closures and reductions in overhead expenses, the Company expects the brand to operate on approximately a break-even basis in Fiscal 2014.
Amended Credit and Term Loan Agreements
In conjunction with the decision to close Gilly Hicks stores, the Company amended its existing Credit and Term Loan Agreements effective November 4, 2013. The amendments allow the Company to exclude from its calculation of the minimum coverage and maximum leverage ratios up to $60 million of cash charges associated with the Gilly Hicks restructuring. In addition, the required minimum coverage ratio will be temporarily reduced through the second quarter of the 2015 Fiscal year. Additional details pertaining to the amendments will be included in a Current Report on Form 8-K expected to be filed by the Company with the Securities and Exchange Commission on November 7, 2013.
The Company will release its third quarter results on Thursday, November 21, 2013, prior to the opening of the market and hold a conference call at 8:30 AM Eastern Time. To listen to the conference call, dial (877) 852-6583 and ask for the Abercrombie & Fitch Quarterly Call or go to www.abercrombie.com. The international call-in number is (719) 325-4933.
Investor Contact:
ICR, Inc./ (203) 682-8275 / Investor_relations@abercrombie.com
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
A&F cautions that any forward-looking statements
(as such term is defined in the Private Securities Litigation Reform Act
of 1995) contained in this Press Release or made by management or
spokespeople of A&F involve risks and uncertainties and are subject
to change based on various important factors, many of which may be
beyond the Company's control. Words such as "estimate," "project,"
"plan," "believe," "expect," "anticipate," "intend," and similar
expressions may identify forward-looking statements. Except as may be
required by applicable law, we assume no obligation to publicly update
or revise our forward-looking statements. The following factors, in
addition to those included in the disclosure under the heading "FORWARD
LOOKING STATEMENTS AND RISK FACTORS" in "ITEM 1A. RISK FACTORS" of
A&F's Annual Report on Form 10-K for the fiscal year ended February
2, 2013, in some cases have affected and in the future could affect the
Company's financial performance and could cause actual results for the
2013 fiscal year and beyond to differ materially from those expressed or
implied in any of the forward-looking statements included in this Press
Release or otherwise made by management: changes in economic and
financial conditions, and the resulting impact on consumer confidence
and consumer spending, could have a material adverse effect on our business, results of operations and liquidity; changing fashion
trends and consumer preferences, and the ability to manage our
inventory commensurate with customer demand, could adversely impact our
sales levels and profitability; fluctuations in the cost, availability
and quality of raw materials, labor and transportation, could cause
manufacturing delays and increase our costs; our growth strategy relies
significantly on international expansion, which requires significant
capital investment, adds complexity to our operations and may strain our
resources and adversely impact current store performance; our
international expansion plan is dependent on a number of factors, any of
which could delay or prevent successful penetration into new markets
or could adversely affect the profitability of our international
operations; our direct-to-consumer operations are subject to numerous
risks that could adversely impact sales; equity-based compensation
awarded under the employment agreement with our Chief Executive Officer
could adversely impact our cash flows, financial position or results of
operations and could have a dilutive effect on our outstanding Common
Stock; our development of a new brand concept could have a material
adverse effect on our financial condition or results of operations;
fluctuations in foreign currency exchange rates could adversely impact
our financial condition and results of operations; our business could
suffer if our information technology systems are disrupted or cease to
operate effectively; comparable sales, including direct-to-consumer, may
continue to fluctuate on a regular basis and impact the volatility of
the price of our Common Stock; our market share may be negatively
impacted by increasing competition and pricing pressures from companies
with brands or merchandise competitive with ours; our ability to attract
customers to our stores depends, in part, on the success of the
shopping malls or area attractions in which most of our stores are
located; our net sales fluctuate on a seasonal basis, causing our
results of operations to be susceptible to changes in Back-to-School and
Holiday shopping patterns; our failure to protect our reputation could
have a material adverse effect on our brands; we rely on the experience
and skills of our senior executive officers, the loss of whom could have
a material adverse effect on our business; interruption in the flow of
merchandise from our key vendors and international manufacturers could
disrupt our supply chain, which could result in lost sales and could
increase our costs; in a number of our European stores, associates are
represented by workers' councils and unions, whose demands could
adversely affect our profitability or operating standards for our
brands; we depend upon independent third parties for the manufacture and
delivery of all our merchandise; our reliance on two distribution
centers domestically and two third-party distribution centers
internationally makes us susceptible to disruptions or adverse
conditions affecting our distribution centers; we may be exposed to
risks and costs associated with credit card fraud and identity theft
that would cause us to incur unexpected expenses and loss of revenues;
our facilities, systems and stores, as well as the facilities and
systems of our vendors and manufacturers, are vulnerable to natural disasters,
pandemic disease and other unexpected events, any of which could result
in an interruption to our business and adversely affect our operating
results; our litigation exposure could have a material adverse effect on
our financial condition and results of operations; our inability or
failure to adequately protect our trademarks could have a negative
impact on our brand image and limit our ability to penetrate new
markets; fluctuations in our tax obligations and effective tax rate may
result in volatility in our operating results; the effects of war or
acts of terrorism could have a material adverse effect on our operating
results and financial condition; our inability to obtain commercial
insurance at acceptable prices or our failure to adequately reserve for
self-insured exposures might increase our expenses and adversely impact
our financial results; operating results and cash flows at the store
level may cause us to incur impairment charges; we are subject to
customs, advertising, consumer protection, privacy, zoning and occupancy
and labor and employment laws that could require us to modify our
current business practices, incur increased costs or harm our reputation
if we do not comply; changes in the regulatory or compliance landscape
could adversely affect our business and results of operations; our
unsecured Amended and Restated Credit Agreement and our Term Loan
Agreement include financial and other covenants that impose restrictions
on our financial and business operations; compliance with changing
regulations and standards for accounting, corporate governance and
public disclosure could adversely affect our business, results of
operations and reported financial results; our inability to implement
our profit improvement plan across all work-streams could have a
negative impact on our financial results; and our estimates of the
expenses that we may incur in connection with the closures of the Gilly
Hicks stores could prove to be inaccurate.
By press releaseSource: Abercrombie & Fitch Co via Thomson Reuters ONE
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