Casual apparel retailer,
Abercrombie & Fitch Co.
) reported adjusted earnings of 3 cents per share for the first
quarter of 2012, marginally beating the Zacks Consensus Estimate of
2 cents per share. However, quarterly earnings for the quarter
dipped substantially from the year-ago quarter earnings of 27 cents
Abercrombie reported net sales growth of 10% in the reported
quarter, reaching $921.2 million from $836.7 million in the
prior-year quarter. However, Abercrombie's quarterly revenue missed
the Zacks Consensus Estimate of $951 million.
Abercrombie's revenue increase for the quarter reflected a 1%
rise in domestic net sales (including direct-to-consumer sales) and
a robust 42% surge in international net sales (including
Overall direct-to-consumer merchandise sales jumped 40% to
$148.2 million in the reported quarter, reflecting continued
strength. During the quarter, the company reported a 5% decrease in
comparable store sales (comps), which incorporated comps decline of
4%, 11% and 5% at Abercrombie & Fitch, abercrombie kids
and Hollister Co, respectively.
First Quarter Summary
In the fourth quarter, gross profit inched up 6% to $576.4
million while gross margin contracted 240 basis points to 62.6%.
The contraction in gross margin was due to a substantial increase
in the average unit cost.
Stores and distribution expenses, as a percentage of sales, rose
49.5% from 47.7% in the prior-year period on account of increased
direct-to-consumer costs, store payroll and store management costs,
partially offset by reduced occupancy cost percentage. Moreover,
marketing, general and administrative expenses, as a percentage of
sales, also contracted 20 basis points to 12.7%.
Operating income for the quarter declined substantially to $6.3
million from $38.7 million in the same quarter last year. This
resulted in operating margins dipping to 0.7% from 4.6% in the
Abercrombie ended the first quarter of fiscal 2012 with cash and
cash equivalents of $321.6 million, marketable securities of $37.9
million and shareholders' equity of $1,693.0 million. Long-term
debt as of April 28, 2012 came in at $65.7 million.
During the quarter, Abercrombie bought back 3.3 million shares
at a total cost of $161.2 million. Further, the board of directors
added an authorization of 10 million shares to the existing share
repurchase program. The company now has a total authorization of
12.9 million shares to be bought back under its share repurchase
Additionally, the board announced a quarterly cash dividend of
1.75 cents per share payable on June 12, 2012 to shareholders of
record as of May 29, 2012.
During the first quarter, the company opened one new Abercrombie
& Fitch store and 7 Hollister stores in international
locations. The company ended first quarter with a total of 1,049
stores, including 294 Abercrombie & Fitch stores, 159
abercrombie kids stores, 575 Hollister Co. stores and 21 Gilly
Hicks stores. Following the quarter-end, the company put up four
more Gilly Hicks stores internationally.
Sneak Peek into 2012
Looking ahead, Abercrombie retained its earnings per share
guidance of $3.50 to $3.75 for fiscal 2012. The company expects
lower sales expectations for fiscal 2012 to be offset in large part
by a higher projected gross margin rate, lower expenses and a lower
share count at the end of the first quarter. Further, the company
now projects comps for fiscal 2012 to be down by a mid-single-digit
percentage, mainly reflecting the first quarter trends.
The company expects to incur capital expenditure of nearly $400
million in fiscal 2012, primarily slated for new stores and
investments in the distribution center and direct-to-consumer
For 2012, the company is sticking to its plan of opening
Abercrombie & Fitch stores in international locations including
Hong Kong, Munich, Dublin and Amsterdam. Additionally, the company
expects to open about 40 Hollister stores in international
locations in fiscal 2012.
Abercrombie operates in a highly fragmented market and competes
with national as well as regional players. Competing with larger
), the company also competes with value-priced specialty retailers
Abercrombie currently retains a short-term Zacks #3 Rank (Hold).
Though cognizant of the rising retail market, we are also conscious
of steep competition in this space and rising commodity prices.
Therefore, we maintain a long-term Neutral recommendation on the
ABERCROMBIE (ANF): Free Stock Analysis Report
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