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Abercrombie & Fitch (ANF)
Q3 2012 Earnings Call
November 14, 2012 8:30 am ET
Brian P. Logan - Vice President of Finance and Controller
Michael S. Jeffries - Chairman, Chief Executive Officer and Member of Executive Committee
Jonathan E. Ramsden - Chief Financial Officer, Principal Accounting Officer and Executive Vice President
Anna A. Andreeva - FBR Capital Markets & Co., Research Division
Paul Lejuez - Nomura Securities Co. Ltd., Research Division
Barbara Wyckoff - Credit Agricole Securities (USA) Inc., Research Division
Marni Shapiro - The Retail Tracker
Stephanie S. Wissink - Piper Jaffray Companies, Research Division
Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division
Dana Lauren Telsey - Telsey Advisory Group LLC
Jennifer Black - Black & Company Inc., Research Division
Jeff Black - Avondale Partners, LLC, Research Division
Randal J. Konik - Jefferies & Company, Inc., Research Division
John D. Morris - BMO Capital Markets U.S.
Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division
Dorothy S. Lakner - Caris & Company, Inc., Research Division
Brian J. Tunick - JP Morgan Chase & Co, Research Division
Betty Y. Chen - Wedbush Securities Inc., Research Division
Oliver Chen - Citigroup Inc, Research Division
Eric M. Beder - Brean Murray, Carret & Co., LLC, Research Division
Erika K. Maschmeyer - Robert W. Baird & Co. Incorporated, Research Division
Omar Saad - ISI Group Inc., Research Division
Previous Statements by ANF
» Abercrombie & Fitch Management Discusses Q2 2013 Results - Earnings Call Transcript
» Abercrombie & Fitch Management Discusses Q1 2012 Results - Earnings Call Transcript
» Abercrombie & Fitch's CEO Discusses Q4 2011 Results - Earnings Call Transcript
At this time, I would like to turn the conference over to Brian Logan. Mr. Logan, please go ahead.
Brian P. Logan
Good morning, and welcome to our third quarter earnings call. Earlier today, we released our third quarter sales and earnings, income statement, balance sheet, store opening and closing summary and updated financial history. Please feel free to reference these materials available on our website.
Also available on our website is an investor presentation, which we will be referring to in our comments during this call. This call is being recorded, and replay may be accessed through the Internet at abercrombie.com under the Investors section.
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 is scheduled for 1 hour.
Joining me today on the call are Mike Jeffries and Jonathan Ramsden. We will begin the call with a few remarks from Mike, followed by a review of the financial performance for the quarter from Jonathan and me. After our prepared comments, we will be available to take your questions for as long as time permits.
And now to Mike.
Michael S. Jeffries
Good morning, everyone. The third quarter results we are reporting today include total sales up 9% and diluted earnings per share up 53% versus a year ago. Our operating margin for the quarter increased to 9.6% from 7.4% a year ago. These significantly improved financial results reflect progress on several fronts over the past quarter.
Starting with sales. We saw a sequential trend improvement in same-store sales in both the U.S. and international businesses. U.S. same-store sales increased 2%, with chain stores up 6% and flagship and tourist stores down 12%. Looking at our U.S. chain stores plus U.S. direct-to-consumer, comparable sales were up 7%, on top of growth of 16% in the comparable period last year. As reflected in the chart in our Investor Presentation, this means we have -- now have had positive growth on this key metric for each of the past 11 quarters.
Our overall international business grew 37% for the quarter, and we saw sequential comparable store sales improvement in all markets other than the U.K., where comps were similar to the second quarter. Elsewhere in Europe, bright spots included positive comps in Scandinavia and flat comps in Belgium and Spain. We are encouraged by our trend in Asia, where our first Hong Kong Hollister store has been comping positively since it lapped the initial opening period. In addition, we expect to comp positively in China when the first 3 stores move into the comp phase. And we have opened well in our first store in South Korea.
International direct-to-consumer sales grew strongly, up 31% versus a year ago, with Europe particularly strong. New stores opened during the quarter have performed well.
Coming back to the U.K., our comp trends there have remained challenged, down high 20s for the quarter, consistent with the second quarter. However, after adjusting for cannibalization, and including direct-to-consumer growth, we believe our underlying comparable sales trend was closer to being down by a mid-teen percentage. In addition, our full price selling mix in our U.K. Hollister stores was better than a year ago.
We believe the sales trend improvement we saw in the quarter is attributable to our inventory flow getting back on track after the issues we talked about in the second quarter. In addition, we have seen some benefit as we have begun to lap the macro-driven declines in our European business a year ago.
Turning to merchandise margin, we saw improvement across all segments of our business, reflecting a significant tailwind from lower product cost. Overall, we are pleased with these improved results, but with the critical fourth quarter still largely ahead of us and significant macroeconomic uncertainties remaining, we continue to be cautious in our near-term outlook. But trust me, we are upbeat, engaged and highly motivated.
In that context, we are continuing to focus on the strategic initiatives we spoke to on our last earnings call and I would like to take a few minutes to speak to each of those. First with regard to merchandising, we are being highly disciplined with regard to our strategy of starting with conservative merchandising plans, shortening lead times and increasing the percentage of our open-to-buy, reserved or chase current trends. In addition, we have heightened our focus on current street and runway trends.