Abercrombie Q4 Profit Sinks 58%, But Still Beats Forecast

One of Abercrombie & Fitch's new ad stars: Kylie Bunbury

One of Abercrombie & Fitch’s new ad stars: Kylie Bunbury

New Albany, OH—Abercrombie & Fitch said today that its fourth quarter profit sank 58% but the struggling teen retailer still managed to exceed expectations, sending its shares upward today.

For the quarter ended Feb. 1, Abercrombie posted net profit of $66.1 million, or 85 cents a share, down from $157.2 million, or $1.95 a share, a year ago. Excluding restructuring costs related to Gilly Hicks and other items, adjusted earnings were $1.34 a share, ahead of analysts’ estimate for $1.04 a share.

Also helping to boost shares today was Abercrombie’s board which approved a $150 million accelerated share repurchase plan to be executed during the first quarter. The company also said it expects at least $175 million in gross savings from its recent cost-cutting plan.

Net revenue dipped 12% to $1.29 billion compared with $1.36 billion in sales that analyst expected. Comparable store sales, which include direct-to-consumer, declined 8%.

To Sell Third Party Brands?

By division, Abercrombie & Fitch comps were down 6%, Abercrombie Kids had a 9% decline and Hollister Co. dropped 10%.

A bright spot: direct-to-consumer sales increased 18% year over year to $315 million.

Gross margin contacted 440 basic points to 59% “primarily driven by increase in promotions, including shipping promotions in the direct-to-consumer business.”

Abercrombie has been grappling with turning around its sales here and internationally as well as dealing with inventory challenges and markdowns. The company also has been amid a power struggle. Last month the board took away CEO Michael Jeffries chairman title and added three new directors to the board. Meanwhile activist investor Engaged Capital LLC recently nominated five candidates to the board in frustration with the current management and retail trends.

Interestingly, Jeffries told analysts on a conference call today that Abercrombie would be soon begin selling other brand named merchandise, not just Abercrombie brands.

“We clearly need to think outside of the confines of our model,” Jeffries said. “We have a long list in the works.”

Opportunities lie especially in footwear, apparel and accessories and actually selling Abercrombie brands in other retailers, though no details were given.

For its full year net earnings, Abercrombie’s income fell to $54.6 million, or 69 cents a share, from $237 million, or $2.85 a share, in the previous year. Adjusted earnings were $1.91 a share. Annual revenue fell 9% to $4.12 billion from $4.51 billion.

For 2014, Abercrombie forecast earnings of $2.15 to $2.35 a share compared with analysts’ estimate for $2.32 a share. The outlook assumes gross margin to be flat to down slightly, a high single-digit decline in comp sales, and a 20% increase in comparable direct-to-consumer sales, the company said.

 

 

 

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Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com

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