Abercrombie & Fitch Q1 Profit Plummets 90% as Increase Costs

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New Albany, OH—Abercrombie & Fitch saw its shares drop in early trading today after the teen-oriented specialty store posted nearly a 90% plunge in its first quarter profit and disappointing comparable store sales.

For the quarter ended April 28, Abercrombie reported its net income dropped to $3 million or 3 cents a share, from $25.14 million, or 28 cents a share, a year ago.

Net sales increased 10% to $921.2 million. However, comparable store sales decreased 5% including a 4% drop for Abercrombie & Fitch, an 11% decline for abercrombie kids and a 5% decrease at Hollister Co. At its U.S. stores, including online, total sales were up 1% to $644.3 million. International sales increased 42% to $277 million.

Despite the increases, the retailer’s earnings just exceeded analysts’ average estimate for 2 cents a share, but missed on their estimate for $951.37 million in sales. Sales of the company fell 13% in trading earlier today.

‘Cotton Cost Issues Behind Us’

“While we are disappointed that European sales trends remain challenging in a very difficult macroeconomic environment, we are largely satisfied with our overall performance for the quarter in that context,” said Mike Jeffries, chairman/ceo. “Our U.S. business, including direct-to-consumer, increased 4% on a comparable basis, on top of a strong performance last year. Our international business comped negatively, but the economics remain strong and we delivered overall international sales growth of 42% including a strong performance in direct-to-consumer.”

Although sales increased overall, so did the company’s costs, climbing 18% to $344.9 million for cost of goods, 14% for store and distribution expenses and up another 9% for marketing and general expenses.

Gross margin declined 240 basis points to 62.6%, driven by a significant increase in average unit cost.

While it faces uncertainty about its European business, Abercrombie & Fitch maintained its full year forecast for earnings of $3.50 to $3.75 a share. “With cotton cost issues now largely behind us, we look forward to strong year over year earnings growth in the back half of the year,” Jeffries added.

The company expects its comparable store sales will be down by mid-single digit percentage.

Analysts’ average estimate expected a full-year profit of $3.57 a share.

 

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