Casual apparel retailer,
Abercrombie & Fitch Co.
), posted robust fourth-quarter and fiscal 2013 results. Earnings
per share of $1.34 for the quarter and $1.91 for the fiscal year
were substantially higher than the Zacks Consensus Estimate of
$1.04 and $1.61, respectively. Better-than-expected results were
primarily due to a lower tax rate that gained due to a major
chunk of earnings coming from across national borders as well as
higher expense savings stemming from the ongoing profit
Including one-time charges related to the restructuring plans for
Gilly Hicks, other impairment charges and implementation of the
ongoing profit improvement initiative, the company reported
earnings per share of 85 cents in the fourth quarter compared
with $1.95 in the prior-year quarter. Full-year reported earnings
came in at 69 cents per share against $2.85 reported in fiscal
Sales and Comps
Abercrombie's net sales for the quarter dipped 12% to $1,299.1
million from $1,468.5 million in the year-ago quarter, primarily
due to weak performances in the both domestic and international
markets. Moreover, the quarterly revenue missed the Zacks
Consensus Estimate of $1,343.0 million.
The decrease in sales reflects a decline of 13% in total domestic
sales (including direct-to-consumer sales) to $852 million and a
9% decline in international business (including
direct-to-consumer sales) to $447 million. Additionally, the weak
sales results for the quarter reflect continued weakness in the
overall spending among youngsters. However, direct-to-consumer
sales increased 18% year over year to $315 million.
Including direct-to-consumer sales, the company's total
comparable-store sales (comps) decreased 8%. The plunge in comps
mainly resulted from an 8% downside in U.S. comps and a 9%
decline in International comps. However, comps benefited from a
24% rise in direct-to-customer comps.
Brand-wise, Abercrombie's comparable sales including
direct-to-consumer sales at its Abercrombie & Fitch,
abercrombie kids and Hollister stores declined 6%, 8% and 10%,
respectively. The company's Abercrombie & Fitch, abercrombie
kids and Hollister brands generated revenues of $477.9 million,
$107.9 million and $684.1 million, respectively.
Net sales for fiscal 2013 rose approximately 9% to $4,116.9
million driven by a 14% decline in domestic sales, marginally
offset by a 2% rise in international sales. However, the
company's top line missed the Zacks Consensus Estimate of $4,162
Quarter in Detail
In the fourth quarter, gross margin contracted 440 basis points
(bps) to 59.0% primarily driven by increase in promotions,
including shipping promotions in the direct-to-consumer business.
Stores and distribution expenses, as a percentage of sales,
remained almost flat at 38.9% compared with the prior-year
period, primarily due to lower in store payroll, store management
and support, and other stores and distribution costs that were
compensated by impact from comps decline and higher
Moreover, marketing, general and administrative expenses declined
nearly 3% to $118.6 million driven by a fall in compensation
expenses offset by higher marketing costs. Marketing, general and
administrative expenses included about $3.2 million charges
related to the ongoing profit enhancement initiative.
Abercrombie ended the quarter with cash and cash equivalents of
$600.1 million, borrowings under the Term Loan Agreement of
$135.0 million and shareholders' equity of $1,729.5 million. As
of Feb 1, 2014, inventories were approximately $530.2 million, up
24% from the prior year.
During fiscal 2013, the company spent nearly $164 million towards
capital expenditures, comprising $101 million for new stores,
store refreshes and remodels, and $63 million for information
technology, distribution center and other home office projects.
Further, the company continued to enhance shareholder value by
buying back about 2.4 million shares valued at $115.8 million.
Available shares for repurchase under the company's authorization
were approximately 16.3 million as of Feb 1, 2014. Moreover, the
company authorized an additional $150 million for repurchase in
the first quarter of fiscal 2014.
The company's board of directors also announced a quarterly cash
dividend of 20 cents per share payable on Mar 18, 2014 to
shareholders of record as of Mar 6, 2014.
During fiscal 2013, the company opened 20 international Hollister
chain stores, a flagship Abercrombie & Fitch store in Seoul
and 4 multi-brand outlet stores. The Hollister stores opened
during the year included the company's first stores in Japan, the
Middle East and Australia. The company's multi-brand outlet
stores included 3 stores in Europe and 1 in the U.S. Moreover,
the company shuttered nearly 62 outlets in the U.S. during the
fiscal year, comprising about 16 Gilly Hicks Stores.
The company ended fiscal 2013 with a total of 1,006 stores,
including 275 Abercrombie & Fitch stores, 136 abercrombie
kids stores, 587 Hollister Co. stores and 8 Gilly Hicks stores.
Restructuring Plans for Gilly Hicks
On Nov 1, 2013, Abercrombie decided to shut down all its
stand-alone Gilly Hicks stores and continue offering the brand's
intimate apparel through its Hollister stores and
direct-to-customer channels. The company expects to close all its
Gilly Hicks stores by the end of first-quarter fiscal 2014.
In relation to the store closures, the company expects to incur
about $90 million of pre-tax charges associated with the Gilly
Hicks restructuring plan. As of Feb 1, 2014, the company has
incurred about $81.5 million of the said $90 million charges and
hopes to record the remaining in the first quarter of fiscal
2014. Apart from the aforementioned restructuring charges the
company has incurred an operating loss of nearly $30 million in
fiscal 2013 associated with the Gilly Hicks operations.
Abercrombie projects fiscal 2014 earnings to range from $2.15 -
$2.35 per share, mainly driven by the expectation of high-single
digit comps decline and about 20% increase in comparable
direct-to-consumer sales. Additionally, the company projects a
flat to slightly down gross margin rate as compared with the
fiscal 2013 level. For the full year, the company anticipates tax
rate of about 35% and nearly 78 million of shares outstanding.
During fiscal 2014, Abercrombie intends to open about 16
full-price international outlets, comprising one flagship
Abercrombie & Fitch store in Shanghai in April 2014 and a
small number of Abercrombie & Fitch mall-based stores.
Additionally, it plans to open a smaller number of international
and U.S. outlet stores in fiscal 2014. Store closures in the U.S.
through lease expirations is expected to sum to about 60-70
during fiscal 2014.
The company anticipates capital expenditure of approximately
$200.0 million or more in fiscal 2014, including the effect of
timing shifts from fiscal 2013.
Further, the company expects to save a minimum of $175 million
(gross) from its ongoing profit improvement initiative through
fiscal 2014. These savings include about $30 million already
saved in fiscal 2013 and additional $145 million anticipated to
be saved in fiscal 2014 along with incremental savings expected
beyond fiscal 2014.
However, these savings are expected to be offset by a $30 million
or higher increase in marketing expenditures in fiscal 2014
relative to fiscal 2013, with the majority of the additional
expense expected to be incurred in the first half of the year.
Other Stocks to Consider
Currently, Abercrombie carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the apparel/shoe industry include
Christopher & Banks Corporation
Finish Line Inc.
Deckers Outdoor Corp.
). Christopher & Banks have a Zacks Rank #1 (Strong Buy),
while Finish Line and Deckers carry a Zacks Rank #2 (Buy).
ABERCROMBIE (ANF): Free Stock Analysis Report
CHRISTOPHER&BNK (CBK): Free Stock Analysis
DECKERS OUTDOOR (DECK): Free Stock Analysis
FINISH LINE-CLA (FINL): Free Stock Analysis
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