Casual apparel retailer, Abercrombie & Fitch Co. (ANF) reported improved bottom-line results for the first quarter of fiscal 2013. The company posted a quarterly loss of 9 cents per share, narrower than the loss of 25 cents reported in the comparable year-ago quarter. However, the reported loss was wider than the Zacks Consensus Estimate of a loss of 5 cents per share.
Summary of the Quarter
Abercrombie’s net sales for the quarter declined 9% to $838.8 million from $921.2 million in the year-ago quarter, primarily due to weak performance in the domestic market, partially offset by robust sales in international markets. Moreover, the quarterly revenue missed the Zacks Consensus Estimate of $950.0 million.
The decrease in total sales reflects a decline of 17% in total domestic sales (including direct-to-consumer sales) to $534.9 million, which was partially offset by an increase of 10% in international business (including direct-to-consumer sales) to $303.9 million. Overall, direct-to-consumer sales tumbled 10% year over year to $132.7 million.
Including direct-to-consumer sales, the company’s total comparable-store sales (comps) decreased 15%, primarily due to a fall of 17% in comparable-store sales and a decline of 6% in comparable direct-to-consumer sales. Abercrombie’s comps including direct-to-consumer sales in the U.S declined 14% while internationally it declined 16%.
Brand-wise, Abercrombie’s comparable sales including direct-to-consumer sales at its Abercrombie & Fitch, abercrombie kids and Hollister stores declined 13%, 5% and 18%, respectively. The company’s Abercrombie & Fitch, abercrombie kids and Hollister generated revenue of $325.0 million, $73.0 million and $421.2 million, respectively.
In the quarter, gross margin improved 720 basis points (bps) to 65.9%. The expansion in gross margin was primarily driven by lower product cost and increased sales of spring merchandize.
Stores and distribution expenses, as a percentage of sales, increased 400 bps to 53.5% compared with 49.5% in the prior-year period, primarily due to lower comparable-store sales. Moreover, marketing, general and administrative expenses as a percentage of sales escalated 150 bps to 14.2% due to enhanced marketing, travelling and IT expenses.
Balance Sheet
Abercrombie ended the quarter with cash and cash equivalents of $555.9 million and shareholders’ equity of $1,779.8 million. As of May 4, 2013, inventories stood at approximately $458.6.
Further, on May 21, 2013, the company’s board of directors announced a quarterly cash dividend of 20 cents per share payable on Jun 18, 2013 to shareholders of record as of Jun 3, 2013.
Store Update
During the quarter, the company opened 4 international Hollister stores. The company ended the quarter with a total of 1,053 stores, including 283 Abercrombie & Fitch stores, 149 abercrombie kids stores, 593 Hollister Co. stores and 28 Gilly Hicks stores.
Sneak Peek into Fiscal 2013
Based on lower-than-expected quarterly results, Abercrombie lowered its fiscal 2013 earnings guidance range to $3.15–$3.25 per share from $3.35–$3.45 projected earlier. The company is expecting comps to decline marginally in fiscal 2013. For the second quarter of fiscal 2013, Abercrombie projects earnings between 28 cents and 33 cents per share.
During the fiscal, Abercrombie intends to open nearly 20 international Hollister stores and shut down 40–50 domestic stores. The company anticipates a capital expenditure of approximately $200.0 million toward new store openings and other planned expenditures in fiscal 2013.
Other Stocks to Consider
Currently, Abercrombie carries a Zacks Rank #3 (Hold). Better performing stocks in the apparel retail industry are American Apparel, Inc. (APP), Buckle Inc. (BKE) and Gap Inc. (GPS). All the stocks carry a Zacks Rank #2 (Buy).
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