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| Hollister© |
New Albany, Ohio, December 3, 2014:
Abercrombie & Fitch Co. (NYSE: ANF) today reported unaudited
financial results that reflected GAAP net income of $18.2 million and
net income per diluted share of $0.25 for the thirteen weeks ended
November 1, 2014, compared to GAAP net loss of $15.6 million and net
loss per basic and diluted share of $0.20 for the thirteen weeks ended
November 2, 2013.
Excluding
certain charges, the Company reported adjusted non-GAAP net income of
$30.4 million and adjusted non-GAAP net income per diluted share of
$0.42 for the third quarter compared to adjusted non-GAAP net income of
$40.5 million and adjusted non-GAAP net income per diluted share of
$0.52 for the third quarter of last year.
A
reconciliation of the GAAP financial measures to the non-GAAP financial
measures is included in a table accompanying the consolidated financial
statements with this release. As used in the release, "GAAP" refers to
accounting principles generally accepted in the United States of
America.
Mike Jeffries, Chief Executive Officer, said:
"As
referenced in our earlier Business Update, our third quarter results
were disappointing in what remains a very challenging environment for
young apparel. Comparable sales improved somewhat in November, and this
improvement was maintained through the Black Friday weekend. However,
we expect conditions to remain difficult through the balance of the
fourth quarter.
Longer term, we
continue to believe we are taking the right steps to position the
company for future success, including our shift to a branded structure,
changes in our assortment and how we engage with our customer, investing
in direct-to-consumer and omni-channel, expanding our international
reach, closing under performing stores, and continuing to reduce
expense. The aggregate impact of these changes represents a significant
transformation for our company, and we are hopeful that the benefits
will start to become evident as we move through 2015."
Third Quarter Sales Results
| Comparable Sales | |||||||||||
| ($ in millions) | Net Sales | % Change | Stores | Direct-to-Consumer | Total | ||||||
| U.S. | $ | 594 | (12)% | (10)% | 5% | (7)% | |||||
| International | $ | 317 | (12)% | (22)% | 15% | (15)% | |||||
| Total Company | $ | 911 | (12)% | (14)% | 8% | (10)% | |||||
After
showing slight sequential improvement in comparable sales in the second
quarter, U.S. store comparable sales sequentially declined slightly in
the third quarter. In addition, international store comparable sales
further decelerated in the third quarter, particularly in Europe.
Direct-to-Consumer comparable sales remained positive in the third
quarter, but by a lower percentage than in the second quarter.
Net
sales by brand for the third quarter were $358.4 million for
Abercrombie & Fitch, $81.3 million for abercrombie kids and $468.1
million for Hollister Co. Comparable sales by brand, including
direct-to-consumer, decreased 6% for Abercrombie & Fitch, decreased
10% for abercrombie kids, and decreased 12% for Hollister Co.
Additional Third Quarter Results Commentary
The
gross profit rate for the third quarter was 62.2%, 80 basis points
lower than last year. Reductions in average unit cost were more than
offset by reductions in average unit retail, reflecting an increase in
promotional activity.
Stores and
distribution expense for the third quarter was $413.6 million, down from
$481.2 million last year. Stores and Distribution expense included
$2.4 million of charges in the third quarter of fiscal 2014 and $0.6
million of charges in the third quarter of fiscal 2013 related to lease
termination, store closure costs and the Company's profit improvement
initiative. Excluding these charges, the stores and distribution
expense rate for the quarter was 45.1% of net sales, down 140 basis
points from last year, driven primarily by savings from the Company's
profit improvement initiative, largely in store payroll and other
controllable store expense, partially offset by higher
direct-to-consumer expense.
Marketing,
general and administrative expense for the third quarter was $105.0
million, down from $126.8 million last year. Marketing, general and
administrative expense included $1.2 million of charges in the third
quarter of fiscal 2014 related to the Company's profit improvement
initiative and certain corporate governance matters compared to $7.0
million of charges in the third quarter of fiscal 2013 related to the
Company's profit improvement initiative. Excluding these charges,
marketing, general and administrative expenses for the third quarter
were down $16.0 million, primarily due to a reduction in compensation
expense, including incentive and equity compensation, partially offset
by an increase in marketing expense.
The
Company incurred restructuring charges of $44.7 million in the third
quarter of fiscal 2013, related to asset impairment, lease termination
and other charges associated with the restructuring of the Gilly Hicks
brand.
The Company incurred asset
impairment charges for the third quarter of $16.7 million, compared to
$43.6 million last year, related to stores whose asset carrying value
exceeded fair value.
Net other
operating income was $1.5 million for the third quarter, compared to
$9.9 million last year, which included approximately $6.0 million of
insurance recoveries.
The
effective tax rate for the third quarter was 34.4% compared to a benefit
of 57.7% last year. On an adjusted non-GAAP basis, the effective tax
rate for the third quarter was 36.7%, compared to 31.1% last year, which
included a benefit of $4.9 million related to certain discrete tax
matters.
The Company ended the third quarter with $617.5 million in inventory at cost, a decrease of 20% versus the prior year.
During
the third quarter, the Company repurchased approximately 2.0 million
shares of its common stock at an aggregate cost of $75 million. As of
November 1, 2014, the Company had approximately 9.0 million shares
remaining available for purchase under its publicly announced stock
repurchase authorizations.
The
Company ended the third quarter with $320.6 million in cash and cash
equivalents and gross borrowings of $300 million, compared to $257.5
million in cash and cash equivalents and gross borrowings of $138.8
million last year.
A summary of
store openings and closings for the third quarter is included with the
financial statement schedules following this release.
Other Developments
As
previously announced, on November 19, 2014, 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 December 10,
2014 to stockholders of record at the close of business on December 2,
2014.
Outlook
The
Company now expects adjusted full year diluted earnings per share in
the range of $1.50 to $1.65. The guidance is based on the assumption
that fourth quarter comparable sales will be down by a mid-to-high
single-digit percentage.
The
guidance also assumes a gross margin rate for the fourth quarter higher
than last year, but lower than the third quarter year-to-date rate. In
addition, the guidance now assumes a full year effective tax rate in the
upper 30's, which remains sensitive to the mix between international
and domestic income.
The above
guidance does not include charges related to the Gilly Hicks brand
restructuring, the Company's profit improvement initiative, certain
corporate governance matters, other potential impairment and store
closure charges.
The Company now
anticipates that it will have opened a total of 12 full-price
international stores for the year, including 7 Hollister stores and 4
Abercrombie & Fitch stores. The Company also expects to have opened
9 international and U.S. outlet stores during the fiscal year. In
addition, the Company continues to expects to have closed approximately
60 stores in the U.S. during the fiscal year through natural lease
expirations.
The Company now expects total capital expenditures for the fiscal year to be approximately $200 million.
An
investor presentation of third quarter results will be available in the
"Investors" section of the Company's website at www.abercrombie.com at
approximately 7:30 AM, Eastern Daylight Saving Time, today.
About Abercrombie & Fitch Co.
Abercrombie
& Fitch Co. is a leading global specialty retailer of high-quality,
casual apparel for Men, Women and kids with an active, youthful
lifestyle under its Abercrombie & Fitch, abercrombie, Hollister Co.
and Gilly Hicks brands. At the end of the third quarter, the Company
operated 834 stores in the United States and 166 stores across Canada,
Europe, Asia, Australia and the Middle East. The Company also operates
e-commerce websites at www.abercrombie.com, www.abercrombiekids.com,
www.hollisterco.com and www.gillyhicks.com.
Today
at 8:00 AM, Eastern Daylight Saving Time, the Company will conduct a
conference call. Management will discuss the Company's performance and
its plans for the future and will accept questions from participants. To
listen to the conference call, dial (877) 874-1567 and ask for the
Abercrombie & Fitch Quarterly Call or go to www.abercrombie.com.
The international call-in number is (719) 325-4886. This call will be
recorded and made available by dialing the replay number (888) 203-1112
or the international number (719) 457-0820 followed by the conference ID
number 3359329 or through www.abercrombie.com.
Investor Contact:
Brian Logan / Abercrombie & Fitch / (614) 283-6877 / Investor_Relations@abercrombie.com
ICR, Inc. / (203) 682-8275
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 1, 2014,
in some cases have affected and in the future could affect the Company's
financial performance and could cause actual results for Fiscal 2014
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; a significant component of our growth strategy
is 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; we have increased the focus of our growth strategy on
direct-to-consumer sales channels and the failure to successfully
develop our position in these channels could have an adverse impact on
our results of operations; our direct-to-consumer operations are subject
to numerous risks that could adversely impact sales, failure to
successfully implement certain growth initiatives may 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; extreme weather conditions may negatively
impact our results of operations; 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 increased
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
four third-party distribution centers internationally makes us
susceptible to disruptions or adverse conditions affecting our
distribution centers; we rely on third-party vendors as well as other
third-party arrangements for many aspects of our business and the
failure to successfully manage these relationships could negatively
impact our results of operations or expose us to liability for the
actions of third-party vendors acting on our behalf; 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; actions of activist stockholders could have a negative
effect on our business; 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 asset-based revolving credit facility and
our Term Loan Facility 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
successfully implement our long-range strategic plan could have a
negative impact on our growth and profitability 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.
Source Abercrombie and Fitch©
HUG#1876352
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