Casual apparel retailer Abercrombie & Fitch Co. (ANF) Friday reported a loss for the first quarter of fiscal 2009, compared with a profit last year, primarily reflecting sharp sales declines and a higher markdown rate. The company also said that it is conducting a strategic review of its Ruehl operation. Further, Abercrombie & Fitch lifted its 2009 capital expenditure outlook.
The clothing retailer, which began operations as an outfitter of sporting and excursion goods, now includes brands such as namesake flagship Abercrombie & Fitch, abercrombie kids, Hollister Co., Ruehl No. 925, and Gilly Hicks.
The company's net loss for the quarter was $26.79 million, or $0.31 per share, compared with net income of $62.12 million, or $0.69 per share, last year.
Analysts polled by Thomson Reuters expected the company to report a loss of $0.14 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales were down 24% to $612.14 million from $800.18 million in the year-ago quarter. Analysts projected sales of $616.48 million. Total company comparable store sales decreased 30% in the first quarter.
Total company direct-to-consumer net sales decreased 21% in the quarter to $49.1 million, with comparable store sales declining 30%.
Gross profit rate decreased in the first quarter, and the company attributed it to a higher markdown rate for the quarter.
Brand wise, Abercrombie & Fitch net sales were $264.7 million while comparable store sales decreased 26%. abercrombie net sales totaled $69.1 million and comparable store sales fell 33%. Hollister Co. generated net sales of $262.4 million, with comparable store sales decreasing 32%. Ruehl's first-quarter net sales were $10.4 million and comparable store sales decreased 34%.
Commenting on the results, Mike Jeffries, Chief Executive Officer and Chairman of the Board of Abercrombie & Fitch Co., said, "The first quarter was clearly a difficult one for us. With a challenging economic environment, the consumer continues to show a reluctance to spend on premium brands; a price consciousness dictating shopping habits unlike anything I have ever seen."
"We believe this is a temporary phenomenon but will approach the current conditions with a conservative mindset until we see a clear improvement. This year will be a transitional year for us as we continue to focus our efforts on laying the groundwork for our long term success and prosperity by protecting our brands, preserving cash and pursuing our international growth opportunities," Jeffries added.
For the sequentially preceding fourth-quarter, the New Albany, Ohio-based retailer reported a profit of $68.41 million, or $0.78 per share, on net sales of $997.96 million.
For the month of April 2009, Abercrombie & Fitch's comparable store sales decreased 22%, while net sales were down 16% to $202.4 million. Total company direct-to-consumer net sales also decreased 24% to $15.2 million.
The company's Board of Directors declared a quarterly cash dividend of $0.175 per share on its Class A Common Stock, payable on June 16, to shareholders of record at the close of business on May 29.
Among peers, American Eagle Outfitters Inc. (AEO) said on May 7 that it continues to expect first-quarter earnings per share in the range of $0.06 - $0.07. Wall Street analysts project earnings of $0.07 per share for the quarter.
American Eagle also said that its total net sales for the first-quarter decreased 4% to $612 million from $640.3 million in last year. Comparable store sales were down 10%. The company is slated to announce its first-quarter earnings on May 27.
Another specialty retailer Gap, Inc. (GPS) is slated to report its results on May 21. Analysts project earnings of $0.30 per share on revenues of $3.11 billion.
In addition, Abercrombie & Fitch today said that it is conducting a strategic review of its Ruehl operation. The outcome of the review has not been determined at this time. However, based on the review and the requirements of Accounting Standards, the company has determined to record a non-cash impairment charge in the first quarter of fiscal 2009. The maximum amount of the charge is approximately $55 million before taxes, representing the current net book value of long-lived assets associated with Ruehl operations. The company also said that this charge is in the process of being determined and will be reflected in the company's Form 10-Q for the first quarter to be filed with the Securities and Exchange Commission on or before June 11.
The Form 10-Q will reflect the required reduction in property and equipment and other assets and the related non-cash impairment charge, which will increase stores and distribution expense, marketing, general and administrative expense, operating loss, income tax benefit, net loss and net loss per share. In addition to the impairment charge, the Ruehl strategic review may result in additional material charges in future periods.
Abercrombie & Fitch also confirmed that it has entered into a new lease for the abercrombie 5th Avenue flagship store in New York, replacing the prior lease. The new space is adjacent to the previous space and offers more store frontage. The store is expected to open in 2010.
Moving forward, Abercrombie & Fitch said that it remains on track to open four flagship stores in fiscal 2009 including Hollister Co. in Soho, Abercrombie & Fitch and abercrombie in Milan and Abercrombie & Fitch in Tokyo. Domestically, the company now expects to open ten mall-based stores in fiscal 2009, including two abercrombie stores, four Hollister Co. stores, two Gilly Hicks stores and two outlet stores.
Internationally, Abercrombie & Fitch now expects to open ten mall-based stores in fiscal 2009, including one abercrombie store in Canada, seven Hollister Co. stores in the United Kingdom, one Hollister Co. store in Germany and one Hollister Co. store in Italy.
Based on the anticipated openings, the company currently expects fiscal 2009 capital expenditures of $200 million, up from its previous estimate range of $165 million - $175 million. The company expects the increase in capital expenditures to be partially offset by an increase in landlord construction allowances.
ANF is trading at $25.82, down $1.43, on a volume of 2.42 million shares. For the 52-week period, the company's trading range was $13.66 - $77.25. KeyBanc Capital has upgraded Abercrombie & Fitch shares to Buy from Underweight and increased price target to $32 from $17.
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