Abercrombie Narrows Q1 Loss, Beats Estimate

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Abercrombie & Fitch storeNew Albany, OH—Taking a new approach to merchandising and marketing seems to have helped. On Thursday, Abercrombie & Fitch reported a first quarter loss that was less than analysts expected.

For the quarter ended May 3, the teen-oriented retailer posted a net loss of $23.7 million, or 32 cents a share, from $7.2 million, or 9 cents, a year earlier. Excluding certain items including restructuring costs related to its Gilly Hicks brand, adjusted loss was $12.98 million, or 17 cents a share. That was less than the 19 cents a share loss analysts had predicted.

‘Substantial Improvements’

Despite a decline, first quarter sales also beat estimates. Net sales were down 1.9% to $822.4 million, ahead of analysts’ average estimate for $796.3 million.

Comparable store sales decreased 4%, an improvement over a 17% drop in the year-ago quarter. The comp store decrease was also less than the 6.9% decline analysts had expected.

Gross margin narrowed 370 basis points to 62.2%, reflecting a higher mix of fall merchandise clearance selling and an increase in promotional activity, the company said.

CEO Mike Jeffries has been working to revive Abercrombie’s appeal among teenage shoppers by offering more fast fashion merchandise like that offered by rivals such as Forever 21 and H&M. For example, Abercrombie added new crop tops varying sleeve lengths and different styles of shorts.

“They made some substantial improvements to their fashion,” Stephanie Wissink, an analyst at Piper Jaffray Cos., said. “They’ve done a good job of making the merchandise presentation more impactful. They’ve made it more of a bold statement.”

Wall Street also responded with Abercrombie’s share up nearly 6% in trading on Thursday.

Abercrombie also reiterated its full year earnings forecast for earnings per share in the range of $2.15 to $2.35. But lowered its comparable store sales decrease to a range of 3% to 4% down and a slightly narrowed gross margin. Previously Abercrombie had expected a comp sales drop in the high single digits.

comparable sales to be in the range of down three to four percent, and a slightly down gross margin rate. The company previously expected high-single digit decline in comparable store sales.

Analysts project annual earnings of $2.34 a share.

Abercrombie also said it expects to open 15 full-price international stores throughout the year. The firm would close about 60 to 70 stores in the U.S. through natural lease expirations.

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