Abercrombie & Fitch Co.
) posted adjusted earnings per share of 19 cents in the second
quarter of fiscal 2014, which increased 18.8% year over year and
fared better than the Zacks Consensus Estimate of 10 cents. The
improvement resulted from sustained progress driven by its profit
Abercrombie & Fitch Co - Quarterly EPS
(BNRI) | FindTheBest
Including certain one-time items, Abercrombie posted earnings of
17 cents per share compared with 14 cents per share in the previous
Sales and Comps
Abercrombie's net sales for the quarter declined 6% to $890.6
million from $945.7 million in the year-ago quarter, due to weak
performance in the domestic and international markets. Moreover,
the quarterly revenue fell short of the Zacks Consensus Estimate of
The decline in sales reflects a 9% drop in total domestic sales
(including direct-to-consumer sales) to $546 million as well as a
1% decrease to $345 million, registered in the international
business (including direct-to-consumer sales).
Including direct-to-consumer sales, the company's total
comparable-store sales (comps) decreased 7%. The drop in comps
mainly resulted from a 5% decrease in U.S. comps and a 9% decline
in International comps. Direct-to-consumer comps increased 11%
during the quarter.
Excluding direct-to-consumer sales, the company's total comps
declined 11%. The plunge in comps mainly resulted from an 8%
downside in U.S. comps and a 16% decline in International comps.
Brand-wise, Abercrombie's comparable sales including
direct-to-consumer sales at its Abercrombie & Fitch,
abercrombie kids and Hollister stores declined 1%, 6% and 10%,
respectively. The company's Abercrombie & Fitch, abercrombie
kids and Hollister brands generated revenues of $349.6 million,
$70.9 million and $464.6 million, respectively.
Quarter in Detail
In the second quarter, gross margin contracted 180 basis points
(bps) to 62.1% primarily due to increased promotional activities.
Store and distribution expenses, as a percentage of sales,
contracted 200 bps to 47.9%, compared with the prior-year period,
primarily due to lower store payroll expenses. This was partially
offset by increased direct-to-consumer expenses and a $1.2 million
cost associated with the ongoing profit improvement move.
Moreover, marketing, general and administrative expenses dipped
nearly 6% to $111.0 million because of a fall in compensation
expenses offset by a rise in marketing costs. Marketing, general
and administrative expenses included charges of about $0.7 million
related to the ongoing profit enhancement initiative.
Abercrombie ended the quarter with cash and cash equivalents of
$311 million, borrowings of $188 million and shareholders' equity
of $1,491 million. As of Aug 2, 2014, inventories were
approximately $550.2 million, up nearly 3.8% from the prior-year
Further, the company continued to enhance shareholder value by
buying back about 1.5 million shares valued at $60 million. Shares
available for repurchase under the company's authorization were
approximately 11 million, as of Aug 2, 2014.
The company ended the quarter with a total of 997 stores, including
836 stores in the United States and 161 stores across Canada,
Europe, Asia, Australia and the Middle East.
The company has reaffirmed its outlook for fiscal 2014. Abercrombie
projects fiscal 2014 earnings to range from $2.15-$2.35 per share.
Comps are expected to decline by a mid-single-digit percentage.
Additionally, the company anticipates a marginal dip in gross
margin rate compared with fiscal 2013 level due to average unit
retail pressure and lower shipping and handling revenues, partially
offset by average unit cost improvement. For the full fiscal, the
company anticipates tax rate in the mid-30s and an increase in
interest expense related to the company's credit facilities.
During fiscal 2014, Abercrombie intends to open about 14 full-price
international outlets, comprising 5 Abercrombie & Fitch and 8
Hollister stores. Moreover, the company plans to open about 8 to 10
international and U.S. outlet stores during the fiscal year. Store
closures in the U.S. due to lease expirations are expected to come
at about 60, during fiscal 2014.
The company anticipates capital expenditure of $210-$220 million in
Other Stocks to Consider
Abercrombie & Fitch currently holds a Zacks Rank #2 (Buy). Some
better-ranked stocks in the same industry include Citi Trends Inc.
), Foot Locker Inc. (
) and Zumiez Inc. (
). While Citi Trends sports a Zacks Rank #1 (Strong Buy), Foot
Locker and Zumiez carry a Zacks Rank #2 (Buy).
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