Abercrombie & Fitch Company (ANF)

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Abercrombie & Fitch Co. (ANF)

F1Q09 Earnings Call

May 15, 2009 8:30 am ET


Eric Cerny - Manager of Investor Relations

Mike Jeffries – Chairman and Chief Executive Officer

Jonathan Ramsden - Chief Financial Officer

Brian Logan – Principal Accounting Officer


Jeff Klinefelter - Piper Jaffray

Brian Tunick – JP Morgan

Liz Dunn - Thomas Weisel

Michele Tan – Goldman Sachs

Jeff Black – Barclays Capital

Paul Lejeuz - Credit Suisse

Janet Kloppenburg - JJK Research

Adrienne Tennant - Friedman, Billings, Ramsey

Barbara Wyckoff - Guerrilla Capital Management

Dana Telsey - Telsey Advisory Group

Christine Chen - Needham & Company

Robin Murchison – SunTrust

Lorraine Hutchison – BAS-ML

Kimberly Greenberger – Citigroup

John Morris - Bank of Montreal

Linda Tsai – MKM Partners

Richard Jaffe – Stifel Nicolaus

Michelle Clark – Morgan Stanley

Jennifer Black - Jennifer Black & Associates

Roxanne Meyer - UBS

Marni Shapiro – The Retail Tracker.



Good morning and welcome to the Abercrombie & Fitch first quarter earnings results conference call. (Operator Instructions) At this time I would like to turn the conference over to Mr. Eric Cerny.

Eric Cerny

Good morning and welcome to our first quarter earnings call. Earlier this morning we released our first quarter sales and earnings, balance sheet, statement of operations and an updated financial history. Please feel free to reference these materials, available on our website.

The figures in these materials, as well as comments we will make this morning regarding our financial results for the first quarter ended May 2, 2009, do not include the effect of a non-cash impairment charge, currently being determined, which is to be recorded in the first quarter in connection with a strategic review of the RUEHL business and will be discussed in greater length later in our prepared comments.

This call is being recorded and the replay may be accessed through the Internet at abercrombie.com.

Before we begin, I remind you that any forward-looking statements we may make today are subject to the Safe Harbor statement found in our SEC filings. Today’s earnings call will be limited to one hour. We will begin the call with a few brief remarks from Mike Jeffries, followed by a review of the financial performance for the quarter from Jonathan Ramsden and Brian Logan. After our prepared comments we will be available to take your questions for as long as time permits. Please limit yourself to one question so that we can speak with any many callers as possible.

Mike Jeffries

Good morning everyone. Thank you for joining us today. The first quarter was clearly a difficult one for us with the challenging economic environment, we continue to face a headwind where the consumer is reluctant to spend on premium brands. There is a price consciousness dictating shoppers' purchases today, unlike anything I have seen before.

We've spent years building our brands to compete on quality, aspiration, and the unique store experience, not on price. There are also fashion headwinds. We are currently in a cycle that lacks a dominant trend in the female business, trends that appear to have some traction but not the long-term trend of classic, casual, preppy, all-American sportswear that is core to our heritage.

Our belief is that all of these phenomena are temporary, however, we are approaching the current conditions with a conservative mindset until we see a clear improvement. We see 2009 as a transitional year and are focusing our efforts on laying the groundwork for our long-term success and prosperity.

We took a number of steps in this direction during the first quarter. First, we pushed forward with our international expansion efforts and continue to be more than excited about the extraordinary opportunity this represents. The future is tied to our international expansion.

Second, there are actions we have taken to improve product and pricing. We are actively planning for meaningful reductions in our average unit retails, while remaining committed to protecting our initial mark-up percentage and providing quality product. We are pleased with the feedback from our customers regarding newness in fashion currently being offered in our assortment and we look for this to continue to improve in summer and back-to-school.

We believe we missed some female fashion trends in the first quarter, but as you can see, we are addressing it. We continue to believe that we can take the trends that are doing well in female fashion and turn them into our handwriting.

Third, we made significant changes at our home office that will enable us to operate more efficiently going forward and will also result in significant cost savings. These were difficult decisions but they were made with an eye to the future. As we have said before, examining our cost structure is an ongoing effort. Jonathan will provide more on this in a moment.

We expect to reap the fruits of all of these efforts partly in 2009 but more significantly in 2010 and beyond. In the meantime, our long-term priorities will continue to be concentrated around protecting the brands, preserving cash, and growing internationally in a seasoned, disciplined and controlled way.

With that, I will hand the call over to Jonathan but will available to answer your questions at the end our prepared comments.

Jonathan Ramsden

While we are disappointed with the loss in the first quarter, as Mike said, we are taking steps to better position us to achieve stronger results going forward. For the first quarter, net sales reduced 24% to $612.0 million while comp sales decreased 30%. Our gross margin rate for the quarter was 63.3%, down 350 basis points, reflecting a higher mark-down rate for the quarter.

Read the rest of this transcript for free on seekingalpha.com