Abercrombie & Fitch Q3 net income up but net sales decline

REPORT_ Abercrombie & Fitch reported unaudited financial results that reflected GAAP net income of 18.2 million dollars and net income per diluted share of 0.25 dollars for the thirteen weeks ended November 1, 2014, compared to GAAP net loss of 15.6 million dollars and net loss per basic and diluted share of 0.20 dollars for the thirteen weeks ended November 2, 2013. Excluding certain charges, the company reported adjusted non-GAAP net income of 30.4 million dollars and adjusted non-GAAP net income per diluted share of 0.42 dollars for the third quarter.

After slight sequential improvement in comparable sales in the second quarter, US store comparable sales sequentially declined slightly in the third quarter. In addition, international store comparable sales further decelerated in the third quarter, particularly in Europe. Direct-to-Consumer comparable sales remained positive, but by a lower percentage than in the second quarter. Net sales by brand were 358.4 million dollars for Abercrombie & Fitch, 81.3 million dollars for abercrombie kids and 468.1 million dollars for Hollister Co. Comparable sales by brand, including direct-to-consumer, decreased 6 percent for Abercrombie & Fitch, decreased 10 percent for abercrombie kids, and 12 percent for Hollister Co.

Commenting on the results, Mike Jeffries, Chief Executive Officer, said, “As referenced in our earlier business update, our third quarter results were disappointing in what remains a very challenging environment for young apparel. Comparable sales improved somewhat in November, and this improvement was maintained through the Black Friday weekend. However, we expect conditions to remain difficult through the balance of the fourth quarter.”

The gross profit rate for the third quarter was 62.2 percent, 80 basis points lower than last year. On November 19, 2014, the Board of Directors declared a quarterly cash dividend of 0.20 dollars per share on the Class A Common Stock of Abercrombie & Fitch, payable on December 10, 2014 to stockholders of record at the close of business on December 2, 2014.

The Company now expects adjusted full year diluted earnings per share in the range of 1.50 dollars to 1.65 dollars. The guidance is based on the assumption that fourth quarter comparable sales will be down by a mid-to-high single-digit percentage. The guidance also assumes a gross margin rate for the fourth quarter higher than last year, but lower than the third quarter year-to-date rate. The company also anticipates that it will have a total of 12 full-price international stores for the year, including seven Hollister stores and four Abercrombie & Fitch stores, nine international and US outlet stores during the fiscal year. In addition, the company continues to expect to close approximately 60 stores in the US during the fiscal year through lease expirations.