New Albany, Ohio,
November 18, 2016: Abercrombie & Fitch Co.
(NYSE: ANF) today reported GAAP net income per diluted share of
$0.12 for the third quarter ended October 29, 2016, compared to
GAAP net income per diluted share of $0.60 for the third quarter
last year. Excluding certain items, the company reported adjusted
non-GAAP net income per diluted share of $0.02 for the third
quarter, compared to adjusted non-GAAP net income per diluted share
of $0.48 last year. The adverse impact from year-over-year changes
in foreign currency exchange rates for the quarter was
approximately $0.09 per diluted share.
A description of the use of
non-GAAP financial measures and a schedule reconciling GAAP
financial measures to adjusted non-GAAP financial measures
accompanies this release.
Arthur Martinez, Executive
Chairman, said:
"As expected, our third quarter
was challenging. While Hollister improved sequentially, it was more
than offset by disappointing performance in A&F. On a total
company basis, conversion trends remained positive across both
channels and the direct-to-consumer business grew domestically and
internationally. In addition, we remained disciplined as expense
and inventory were well controlled.
We were pleased with the progress
in Hollister where the comparable sales trend improved throughout
the quarter. There continued to be positive response to Hollister's
product innovations, emerging categories and overall customer
experience and we expect the comparable sales trend to further
improve in the fourth quarter.
For A&F, flagship and tourist
locations continued to be a major headwind. In addition, chain
store traffic patterns remained negative. Weakness in A&F was
compounded by underperformance of seasonal categories, which
ultimately led to pressure on gross margin. While we anticipate the
A&F business will remain challenging through the balance of the
fiscal year, we continue to move aggressively to evolve the brand
across all channels through significant changes in product,
customer experience and marketing. A comprehensive set of strategic
and operational actions is being taken by an experienced team under
new leadership, and we expect to see benefits as our efforts gain
traction."
Third Quarter Sales
Results
Net sales for the third quarter of
$821.7 million were down 6% over last year, with comparable sales
for the third quarter down 6%.
Fiscal 2016 Comparable Sales Summary (1) |
Brand |
|
Geography |
|
|
First Quarter |
|
Second Quarter |
|
Third Quarter |
|
Year-to-Date |
|
|
|
First Quarter |
|
Second Quarter |
|
Third Quarter |
|
Year-to-Date |
Abercrombie(2) |
|
(8)% |
|
(7)% |
|
(14)% |
|
(10)% |
|
United
States |
|
(2)% |
|
(4)% |
|
(5)% |
|
(4)% |
Hollister |
|
0% |
|
(2)% |
|
0% |
|
(1)% |
|
International |
|
(7)% |
|
(4)% |
|
(10)% |
|
(7)% |
Total
Company |
|
(4)% |
|
(4)% |
|
(6)% |
|
(5)% |
|
Total
Company |
|
(4)% |
|
(4)% |
|
(6)% |
|
(5)% |
(1) Comparable
sales are calculated on a constant currency basis.
(2) Abercrombie
includes the Abercrombie & Fitch and abercrombie kids
brands.
By brand, net sales for the third
quarter decreased 13% to $358.3 million for Abercrombie and
decreased 1% to $463.5 million for Hollister over last year.
By geography, net sales for the
third quarter decreased 7% to $531.4 million in the U.S. and
decreased 5% to $290.3 million in international markets over last
year.
Direct-to-consumer and omnichannel
sales grew to approximately 23% of total company net sales for the
third quarter, compared to approximately 21% of total company net
sales last year.
Additional Third
Quarter Results Commentary
The gross profit rate for the
third quarter was 62.2%. Excluding certain items last year, the
gross profit rate decreased 60 basis points on a constant currency
basis, primarily due to lower average unit retail, partially offset
by lower average unit cost.
Stores and distribution expense
for the third quarter was $386.6 million, down from $392.9 million
last year. Excluding certain items last year, stores and
distribution expense decreased $5.8 million, primarily due to the
realization of savings on lower sales and expense reduction
efforts, partially offset by higher direct-to-consumer expense.
Marketing, general and
administrative expense for the third quarter was $105.3 million,
down from $117.7 million last year. Excluding certain items,
adjusted non-GAAP marketing, general and administrative expense
decreased $6.4 million, primarily due to expense reduction efforts,
partially offset by higher marketing expenses.
Net other operating income for the
third quarter was $0.8 million, compared to net other operating
income of $3.9 million last year.
Operating income for the third
quarter was $19.6 million, compared to operating income of $41.0
million last year. Excluding certain items, adjusted non-GAAP
operating income for the third quarter decreased $37.4 million.
The effective tax rate for the
third quarter was 45%, reflecting a catch-up adjustment related to
a change in the estimated full year effective tax rate.
Net income attributable to
Abercrombie & Fitch Co. for the third quarter was $7.9 million,
compared to net income attributable to Abercrombie & Fitch Co.
of $41.9 million last year. Excluding certain items, adjusted
non-GAAP net income attributable to Abercrombie & Fitch Co. for
the third quarter was $1.4 million, compared to adjusted non-GAAP
net income attributable to Abercrombie & Fitch Co. of $32.9
million last year.
The company ended the quarter with
$469.7 million in cash and cash equivalents, and gross borrowings
under the company's term loan agreement of $293.3 million, compared
to $405.6 million in cash and cash equivalents and $297.0 million
in borrowings last year.
The company ended the quarter with
$516.1 million in inventory, a decrease of 14% versus last
year.
Other
Developments
As previously announced, on
November 16, 2016 the Board of Directors declared a quarterly cash
dividend of $0.20 per share on the Class A Common Stock of
Abercrombie & Fitch Co., payable on December 12, 2016 to
stockholders of record at the close of business on December 2,
2016.
The company will be closing its
A&F flagship store in Seoul in January 2017. In addition,
subsequent to the end of the third quarter, the company exercised a
lease kick-out option for its A&F flagship store in Hong
Kong. As a result of this decision, the company expects to
incur a lease termination charge of approximately $16 million
during the fourth quarter. These actions are part of the
company's ongoing strategic review and are expected to drive
economic benefit over time.
Outlook
For the fourth quarter of fiscal
2016, the company expects:
-
Comparable sales to be challenging, but modestly
improved from the third quarter
-
Continued adverse impact from foreign currency
on sales and operating income
-
A gross margin rate down slightly to last year's
adjusted non-GAAP rate of 60.7%, driven by lower average unit
retail, partially offset by lower average unit cost
-
Operating expense, including a lease termination
charge of approximately $16 million, to be up about 1% from last
year's adjusted non-GAAP operating expense of $554 million, with
the lease termination charge partially offset by savings from lower
sales and expense reduction efforts
-
Net income attributable to noncontrolling
interests of approximately $1 million
-
A weighted average diluted share count of
approximately 68 million shares, excluding the effect of potential
share buybacks
On a full year basis, the company
expects the effective tax rate to be in the mid to upper 20s, but
to remain sensitive at lower levels of pre-tax earnings.
The company now expects capital
expenditures to be approximately $140 million for the full
year.
In addition to the 13 stores
opened year to date, including five outlet stores, the company
expects to open seven new stores in the fourth quarter, including
five in China and two in the U.S. The company also anticipates
closing approximately 35 stores in the U.S. in the fourth quarter
through natural lease expirations, in addition to the 15 stores
closed year to date.
Excluded from the company's
outlook are the effects of certain potential items, such as asset
impairment charges, litigation charges and insurance
recoveries.
An investor presentation of third
quarter results will be available in the "Investors" section of the
company's website at www.abercrombie.com at approximately 8:00 AM,
Eastern Standard Time, today.
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
A&F cautions that any
forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) contained in this Press
Release or made by management or spokespeople of A&F involve
risks and uncertainties and are subject to change based on various
important factors, many of which may be beyond the company's
control. Words such as "estimate," "project," "plan," "believe,"
"expect," "anticipate," "intend," and similar expressions may
identify forward-looking statements. Except as may be required by
applicable law, we assume no obligation to publicly update or
revise our forward-looking statements. The following factors, in
addition to those included in the disclosure under the heading
"FORWARD-LOOKING STATEMENTS AND RISK FACTORS" in "ITEM 1A. RISK
FACTORS" of A&F's Annual Report on Form 10-K for the fiscal
year ended January 30, 2016, in some cases have affected,
and in the future could affect, the company's financial performance
and could cause actual results for Fiscal 2016 and beyond
to differ materially from those expressed or implied in any of the
forward-looking statements included in this Press Release or
otherwise made by management: changes in global economic and
financial conditions, and the resulting impact on consumer
confidence and consumer spending, as well as other changes in
consumer discretionary spending habits, could have a material
adverse effect on our business, results of operations and
liquidity; our inability to anticipate customer demand and changing
fashion trends and to manage our inventory commensurately could
adversely impact our sales levels and profitability; a significant
component of our growth strategy is international expansion, which
requires significant capital investment, the success of which is
dependent on a number of factors that could affect the
profitability of our international operations; direct-to-consumer
sales channels are a significant component of our growth strategy,
and the failure to successfully develop our position in these
channels could have an adverse impact on our results of operations;
our market share may be negatively impacted by increasing
competition and pricing pressures from companies with brands or
merchandise competitive with ours; we have currently suspended our
search for a new Chief Executive Officer and the continuance of our
interim governance structure may create uncertainty; our inability
to successfully implement our strategic plans could have a negative
impact on our growth and profitability; our failure to protect our
reputation could have a material adverse effect on our brands; our
business could suffer if our information technology systems are
disrupted or cease to operate effectively; we may be exposed to
risks and costs associated with cyber-attacks, credit card fraud
and identity theft that would cause us to incur unexpected expenses
and reputation loss; fluctuations in foreign currency exchange
rates could adversely impact our financial condition and results of
operations; fluctuations in the cost, availability and quality of
raw materials, labor and transportation, could cause manufacturing
delays and increase our costs; we depend upon independent third
parties for the manufacture and delivery of all our merchandise,
and a disruption of the manufacture or delivery of our merchandise
could result in lost sales and could increase our costs; our
ability to attract customers to our stores depends, in part, on the
success of the shopping malls or area attractions that our stores
are located in or around; we rely on the experience and skills of
our senior executive officers, the loss of whom could have a
material adverse effect on our business; our reliance on two
distribution centers domestically and third-party distribution
centers internationally makes us susceptible to disruptions or
adverse conditions affecting our distribution centers; our
litigation exposure could have a material adverse effect on our
financial condition and results of operations; our inability or
failure to adequately protect our trademarks could have a negative
impact on our brand image and limit our ability to penetrate new
markets; fluctuations in our tax obligations and effective tax rate
may result in volatility in our operating results; extreme weather
conditions and the seasonal nature of our business may cause net
sales to fluctuate and negatively impact our results of operations;
our facilities, systems and stores, as well as the facilities and
systems of our vendors and manufacturers, are vulnerable to natural
disasters, pandemic disease and other unexpected events, any of
which could result in an interruption to our business and adversely
affect our operating results; the impact of war or acts of
terrorism could have a material adverse effect on our operating
results and financial condition; changes in the regulatory or
compliance landscape could adversely affect our business and
results of operations; our Asset-Based Revolving Credit Agreement
and our Term Loan Agreement include restrictive covenants that
limit our flexibility in operating our business; and, compliance
with changing regulations and standards for accounting, corporate
governance and public disclosure could adversely affect our
business, results of operations and reported financial
results.
About Abercrombie & Fitch Co.
Abercrombie &
Fitch Co. (NYSE: ANF) is a leading, global specialty retailer of
apparel and accessories for Men, Women and Kids through three
renowned brands. The iconic Abercrombie & Fitch brand
embodies American casual luxury. With an updated attitude
that reflects the character, charisma and confidence of today's 20+
consumer, Abercrombie & Fitch remains true to its 125-year
heritage of creating expertly crafted products with an effortless,
American style. The Hollister brand epitomizes the
liberating and carefree spirit of the endless California summer for
the teen market. abercrombie kids creates smart, playful
apparel for children ages 3-14, celebrating the wide-eyed wonder of
childhood. The brands share a commitment to offering products of
enduring quality and exceptional comfort that allow consumers
around the world to express their own individuality and
style.
The Company
operates over 900 stores under these brands across North America,
Europe, Asia and the Middle East, as well as the e-commerce sites
www.abercrombie.com and www.hollisterco.com.
Today at 8:30 AM,
Eastern Standard Time, the company will conduct a conference
call. Management will discuss the company's performance and
its plans for the future and will accept questions from
participants. To listen to the conference call, dial (888) 428-9496
and ask for the Abercrombie & Fitch Quarterly Call or go to
www.abercrombie.com. The international call-in number is
(719) 325-2201. This call will be recorded and made available
by dialing the replay number (888) 203-1112 or the international
number (719) 457-0820 followed by the conference ID number 7343043
or through www.abercrombie.com.
Investor Contact: |
|
Media
Contact: |
|
|
|
Brian
Logan |
|
Michael Scheiner |
Abercrombie & Fitch |
|
Abercrombie & Fitch |
(614)
283-6877 |
|
(614)
283-6192 |
Investor_Relations@abercrombie.com |
|
Public_Relations@abercrombie.com |
Q3 2016 ER Financials
This
announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the
information contained therein.
Source: Abercrombie & Fitch Co via Globenewswire
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