Abercrombie & Fitch Co. (ANF, Financial) recently reported its first quarter results for fiscal 2015. The apparel retailer posted net loss of $63.25 million or 91 cents a share for the quarter, down significantly from a loss of $23.67 million or 32 cents a share in the prior-year quarter. On a non-GAAP basis, the company logged net loss of 53 cents a share compared to the loss of 17 cents a share in Q1 2014. This compares poorly to the consensus estimate of adjusted loss of 34 cents a share for the quarter. However, despite the poor showing, Abercrombie & Fitch shares gained over 13.5% during the day’s trading and stood at $22.3 at closing bell.
Sales Declines across Brands, Operating Regions
Abercrombie & Fitch posted 14% year-over-year decline in sales to $709.42 million for the first quarter of fiscal 2015, primarily owing to negative foreign currency headwinds as well as an 8% drop in comparable-store sales. While the company had seen sales of $822.43 million in the year-ago quarter, its Q1 revenues also fell short of the consensus estimate of $730.91 million. Abercrombie & Fitch also saw gross profit contracting 420 basis points during the quarter to 58% on a GAAP basis, while excluding certain charges, gross profit expanded 70 basis points to 61.8% on a constant currency basis, owing to reduced average unit costs. Adjusted SG&A costs fell 7.5% to $105.8 million during the quarter owing to the company's cost-containment program.
Abercrombie & Fitch reported 12% drop in sales at each of its Hollister and Abercrombie brands, with comparable-store sales dipping 6% and 9% respectively. While the Abercrombie brand generated revenues of $340 million during the quarter, the company saw revenues of $369 million coming in from the Hollister brand. Region wise, net sales declined 11% in the US to $448.9 million and 18% in the international market to $260.5 million. At the same time, comparable-store sales in the US and international market fell 7% and 9% respectively.
Fiscal 2015 Outlook
Following the results, Abercrombie & Fitch, which competes with businesses such as American Eagle Outfitters Inc. (AEO, Financial) and The Gap Inc. (GPS, Financial) in the apparels retail segment, said it expected continued negative impact of foreign currency headwinds through the fiscal. Comparable-store sales are expected to improve sequentially through the remaining quarter fiscal 2015. The company also projected flat to slightly positive year-over-year growth in gross margin during the fiscal while operating expenses are projected to drop by around $140 million year-over-year. At the same time, Abercrombie & Fitch also foresees capital expenditure of almost $150 million towards new store launches as well as direct-to-consumer and other technological initiatives.
Consensus estimates peg the company’s Q2 EPS at a loss of 3 cents a share, while for the full fiscal 2015; Abercrombie & Fitch is expected to post earnings of 92 cents a share.
Final Thoughts
Abercrombie & Fitch reported downbeat results for Q1 2015, with net loss widening and net sales declining year-over-year. The company also saw decline in comparable-store sales across brands and operating regions. However, there were sequential improvements with respect to several parameters during the quarter, particularly the Hollister brand and comparable-store sales that improved from the 13% decline reported for the preceding quarter. Further, the company said that the several initiatives taken to improve business were still in early stages of implementation and it would be a while before the benefits were realized. Although investors rewarded the company, sending its shares up over 13% following the results, experts are guarded regarding Abercrombie & Fitch’s near-term performance. Although the company’s earnings are expected to grow by an average annual rate of nearly 13% over the next five years, experts are projecting as much as 40% decline in year-over-year earnings for fiscal 2015. Consequently, the Abercrombie & Fitch stock currently carries a ‘hold’ guidance.
