I had blogged 3 years ago (click here) about why Abercrombie & Fitch should consider using selective (and end of season discounts) to increase volume so that it does not have an inventory pile-up. Most of the world might have considered me silly for saying that... A&F was hot, had raging sales growth and industry-high margins.
After 3 years, I hear this from a Reuters article in May 2012 of its Q1 report:
Abercrombie & Fitch Co (ANF.N)
posted a sharp drop in profit and its first quarterly decline in sales
at established stores in more than two years, leading to concern that a
growing inventory could mean future discounting.
Its shares fell 13 percent to touch their lowest in more than two years on the New York Stock Exchange.Same-store
sales, or sales at stores open at least a year -- an important measure
of retail growth -- fell 5 percent in the quarter, and the teen clothing
retailer forecast a tepid year ahead.
"While
management didn't quantify international comparable sales ... we
estimate total international comparables were down double digits," Paul
Lejuez, an analyst with Nomura wrote in a note to clients. He noted this was the first negative quarterly comparable sales for the company's Hollister brand in Europe.
Net sales rose 10 percent to $921.2 million, but even that missed estimates.
Abercrombie
said it ended the quarter with inventory up 44 percent, against the 10
percent rise in sales. Lejuez said that could signal more markdowns were
on the way.
Abercrombie said
margins were expected to improve throughout the year, but if it had to
resort to discounting while rivals were selling clothing at full price,
it could affect margins.
Earlier this month, American Eagle Outfitters Inc (AEO.N) raised its profit expectations for the first quarter sharply as it sold more clothes at full price.
Most
clothing retailers, especially those that cater to teens and young
adults, were expected to post strong sales for the first quarter as
wardrobes were updated for spring breaks and warm weather.
For
the first quarter that ended April 28, Abercrombie earned $3.0 million,
or 3 cents per share, compared with $25.1 million, or 28 cents per
share, a year earlier.
In Q1, ANF was holding 56 days of sales in inventory (the actual number is higher considering that I use cost of inventory and price of sales). Its gross margin has reduced to 62.5% (down from 66% 3 years ago)...but still significantly high compared to industry average.
According to this AP report:
Abercrombie & Fitch announced in June that it was closing 180 U.S.
stores over the next few years. The chain had already closed 135
under-performing U.S. stores in two years. The closure will primarily be
among its namesake and kids brands but it also plans to close a few
Hollister stores as well.
I will be watching their Q2 results on Wednesday to see how this story develops.
1 comment:
Quick update on the Q2 numbers from Abercrombie & Fitch:
ABERCROMBIE & FITCH REPORTS SECOND QUARTER 2012 RESULTS BOARD OF DIRECTORS DECLARES QUARTERLY DIVIDEND OF $0.175 AND INCREASES SHARE REPURCHASE AUTHORIZATION BY TEN MILLION SHARES
New Albany, Ohio, August 15, 2012: Abercrombie & Fitch Co. (NYSE: ANF) today reported unaudited results which reflected net income of $15.5 million and net income per diluted share of $0.19 for the thirteen weeks ended July 28, 2012, compared to net income of $32.0 million and net income per diluted share of $0.35 for the thirteen weeks ended July 30, 2011.
Mike Jeffries, Chief Executive Officer and Chairman of the Board of Abercrombie & Fitch Co., said:
"The second quarter results we are reporting today are disappointing and below our expectations coming into the quarter. In particular, we saw a further deceleration in the trend in our international stores, while our U.S. chain stores also comped negatively for the quarter for the first time since 2009. Our direct to consumer business remained a bright spot, posting its tenth successive quarter with growth of 25% or better.
Our entire organization is completely focused on improving upon the trends we have seen. There are factors beyond our control but, as a team, we believe there are opportunities to do better. We continue to be confident in the global appeal of our iconic brands. This was once again affirmed by the tremendous reception our Hong Kong flagship received at its opening this past Saturday. We remain excited and optimistic about the opportunities ahead of us, and we will be disciplined and judicious in our use of our shareholders' capital to pursue those opportunities."
Second Quarter Summary
Net sales for the thirteen weeks ended July 28, 2012 increased 4% to $951.4 million from $916.8 million for the thirteen weeks ended July 30, 2011. Total U.S. sales, including direct-to-consumer sales, decreased 5% to $648.0 million. Total international sales, including direct-to-consumer sales, increased 31% to $303.4 million. Total Company direct-to-consumer sales, including shipping and handling, increased 25% to $127.7 million.
Total comparable store sales for the quarter decreased 10% relative to last year. By brand, comparable store sales decreased 11% for Abercrombie & Fitch, 10% for abercrombie kids, and 10% for Hollister Co. Total sales by brand were $362.5 million for Abercrombie & Fitch, $76.3 million for abercrombie kids and $485.6 million for Hollister Co.
The gross profit rate for the second quarter was 62.5%, 110 basis points lower than last year's second quarter gross profit rate. The decrease in the gross profit rate was driven by an increase in average unit cost and the adverse effect of exchange rates, partially offset by an international mix benefit.
Net income was $15.5 million and net income per diluted share was $0.19 for the thirteen weeks ended July 28, 2012, compared to net income of $32.0 million and net income per diluted share of $0.35 for the comparable period last year.
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