Abercrombie & Fitch Q1 Comp Sales Sink, Lowers Forecast

In Reports, What's New, Industry News by Jeff Prine

Summer at A&FNew Albany, OH—Shares of Abercrombie & Fitch plunged the most in nine months after the teen retailer reported Friday a deeper-than-expected first quarter loss and a 15% drop in its comparable store sales.

For the quarter ended May 4, Abercrombie posted a net loss of $7.2 million, or 9 cents a share, compared to a loss of $21.3 million, or 25 cents a share, a year ago. But analysts’ average estimate expected a smaller loss, 5 cents a share.

Net revenue declined 8.9% to $838.8 million, well below the $941 million in sales analysts had expected. Comparable store sales dropped 15% while comp sales at Hollister fell 18% and 13% at Abercrombie & Fitch stores.

International sales rose 10% to $303.9 million, but the company’s U.S. sales fell 17% to $534.9 million. The other bit of good news: gross margin widened to 65.9% from 58.7% due primarily to lower costs.

Abercrombie management blamed the dismal quarterly results on “significant inventory shortage issues,” but also forecasted full year earnings below analysts’ estimates.

While noting the narrowed loss for the quarter, Abercrombie CEO Mike Jeffries acknowledged that “the first quarter proved to be more difficult than expected on the top-line due to more significant inventory shortage issues than anticipated, added to by external pressures.

“It took a little bit longer than anticipated to flow in some of our spring deliveries,” Jeffries told analysts, adding that the company had also been too conservative in ordering but that the inventory problems had been largely resolved.

Looking ahead, Abercrombie warned its comparable store sales are expected to decline for the rest of the year, with earnings per share ranging from $3.15 to $3.25 a share. That’s well below the $3.49 a share that analysts consensus expects.

For the current quarter, Abercrombie forecast earnings of 28 cents to 33 cents a share, while analysts’ estimate forecast 31 cents.

“Comparable sales trends progressively improved during the quarter and with the inventory headwinds largely behind us, we expect to see continued sequential improvement in the second quarter,” Jeffries said.



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