Abercrombie & Fitch Co.
) recently updated its preliminary results for the second quarter
2012. Driven by robust sales performance in international market,
total sales for the company went up by 4% to $951.4 million from
$916.8 million in the comparable prior-year period.
The increase in total sales reflected robust growth of 31% in
international business (including direct-to-consumer sales) to
$303.4 million, partially offset by a decline of 5% in domestic
sales (including direct-to-consumer sales) to $648.0 million.
Overall, direct-to-consumer sales jumped 25% to 127.7 million in
the quarter under review, signifying continued strength in online
business. During the quarter, comparable store sales fell 10%
compared with the year-ago period, reflecting a decline of 5% and
26% in domestic stores and international stores, respectively.
Abercrombie now anticipates a contraction of 100 basis points in
gross margin during the second quarter of fiscal 2012 compared with
the prior-year quarter. For the to-be-reported quarter, the company
expects earnings per share in the range of 15 cents-18 cents.
Moreover, inventory at cost is expected to increase by 20%,
implying shoddier sales trend.
Further, based on weak sales trend along with strong domestic
currency and increased tax rate, Abercrombie trimmed its earnings
guidance for full-year 2012 to $2.50-$2.75 per share, from its
earlier guidance range of $3.50-$3.75.
In addition, the company guided towards a fall of 10% in
comparable-store sales for the second half of fiscal 2012. However,
it expects significant recovery in its gross margin contraction
rate in fiscal 2012, compared with fiscal 2011.
Due to macro-economic headwinds, Abercrombie is likely to revise
its strategic plans for the fiscal 2012. Management is aiming to
open about 30 Hollister stores in international locations in fiscal
2012, much less than their earlier target of 40 stores.
Further, the company intends to hold its store openings
commitments in domestic as well as international markets.
Abercrombie has trimmed down its capital expenditure by $0.60
million to $360 million.
Abercrombie is slated to release its second-quarter financial
results on Wednesday, August 15, 2012. The company will provide
additional details on the second-quarter 2012 in its conference
Abercrombie is one of the leading specialty retailers of premium
casual apparels in the U.S. The company has a strong portfolio of
well-established brands, each of which is focused on the unique
characteristics and rapidly changing preferences of its target
In the face of economic challenges, where teenagers have become
less active shoppers, Abercrombie has shifted its focus toward
closing down its underperforming U.S. chain stores and speeding up
growth at its Abercrombie Kids and Hollister store concepts.
Moreover, the company is concentrating on increasing its presence
in international markets as a means to drive top-line growth.
Abercrombie operates in a highly fragmented market and competes
with national as well as regional players, which may take a toll on
its performance. Furthermore, apart from larger retailers such as
), Abercrombie is facing increasing competition from value-priced
specialty retailers, such as
Based on lower guidance for the fiscal 2012, Abercrombie carries
a Zacks #4 Rank, implying a short-term Sell rating for the next 1-3
months. However, we maintain our long-term Neutral recommendation
on the stock.
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