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NEW YORK — Abercrombie & Fitch Co. found its groove late last year, and its name was Hollister.
Thanks to much-improved same-store sales in the fourth quarter, including a 17 percent comp-store leap in January and a focus on store improvements and staffing, Abercrombie posted fourth-quarter earnings Tuesday that rose 10.6 percent and easily surpassed analysts’ estimates. Its lower-priced Hollister division led the quarter with a 74 percent surge in revenues.
The quarter’s results helped fuel the specialty retailer’s optimism regarding its existing international expansion strategy, which now includes plans for up to five new stores in Canada this year — with an eventual goal of 20 stores over time — as well as a confirmation that its first European stores are projected to open by late 2006. Abercrombie said it had hired a chief executive officer and a chief financial officer for its European business, whose roles became effective on Feb. 1. Their names were not provided.
Domestically, the development of its newest concept, Ruehl, also remains on track with the expected addition of five new stores in the year, in addition to the one Ruehl store opened in the just-completed quarter, near Detroit. Through several planned remodels and other store additions to its three other brands, most notably its Hollister concept, total square footage is seen increasing 9 percent this fiscal year. Total capital expenditures are forecast at $225 million to $250 million in 2005, versus $186 million in 2004.
Full-year 2005 earnings, meanwhile, are forecast within range of analysts’ consensus estimate, assuming a sales increase of 20 percent, at $2.80 to $3 a share, versus Wall Street estimates of $2.92. Abercrombie said it plans to begin offering only annual earnings guidance going forward, which it anticipates will be updated when past estimates differ materially. Abercrombie explained that it finds annual guidance “more meaningful” to investors because they tend to look more closely at the long-term performance of the company.
In the 13 weeks ended Jan. 29, net income rose to $104.5 million, or $1.15, compared with $94.5 million, or 97 cents, a year ago. The consensus on Wall Street was for a profit of $1.13 a share.
With a comp-store sales advance of 9 percent in the quarter, total sales increased 22.6 percent to $687.3 million from $560.4 million a year ago. Comps rose 4 percent at adult Abercrombie stores, 19 percent at Hollister and 16 percent in Abercrombie kids stores. Hollister alone saw sales per square foot for the year exceed $420. In the quarter, Hollister had sales of $210.2 million, up 74 percent.
“Our results were solid from a volume, margin and earnings standpoint. In addition to these strong results, we have improved quality in every aspect of our business, and our stores look and feel better than ever,” said Michael Jeffries, chairman and chief executive officer of Abercrombie, on a conference call with analysts and investors. By the quarter’s end, the New Albany, Ohio-based retailer operated 356 Abercrombie & Fitch, 171 Abercrombie kids, 256 Hollister and four Ruehl stores.
The company noted, however, that it will restate its consolidated statements of cash flows and net income for the fiscal years ended Feb. 2, 2002, Feb. 1, 2003 and Jan. 31, 2004 to reflect certain construction allowances from landlords of leased store properties. The adjustments will affect net income each year by about $1 million.
Robert Singer, chief operating officer, reiterated on the call that the company’s Ruehl concept is “off to a great start.” It posted a $12 million loss, net of taxes, in 2004 and is projected to post an $18 million loss in fiscal 2005, net of taxes.
“It is still too early for the business to make a meaningful contribution from a value and profitability standpoint,” Singer said on the call, although he does expect 2007 to be a turning point for the brand in terms of profitability.
Regarding 2005 expansion plans, the company is focused on building a 34,000-square-foot flagship Abercrombie & Fitch, which is anticipated to open this fall at Fifth Avenue and 56th Street here. Another flagship is planned for Los Angeles.
In addition, 55 Hollister stores will be added in 2005, including the conversion of three adult Abercrombie and five Abercrombie kids stores to smaller-formatted Hollister stores. One Abercrombie store will be converted to a Ruehl store, and 18 new adult Abercrombie stores, as well as three new Abercrombie kids stores, will be opened.
Regarding the five stores that are expected to be opened in Toronto and Edmonton, Canada, Singer said the company has already signed leases or is in negotiations for the locations. Two of the locations in Toronto will be Hollister stores and one will be an adult Abercrombie site. One of each is expected to open in Edmonton.
The company declared a quarterly dividend of 12.5 cents a share, which will be distributed to shareholders of record on March 22. Shares of Abercrombie closed Tuesday’s session off 0.9 percent at $54.30.
For the full year, Abercrombie earned $217.5 million, or $2.29, including a $25.6 million charge relating to the settlement of three diversity lawsuits disclosed in the third quarter. Comparatively, the company had a profit of $205.7 million, or $2.07, last year. Total sales increased 18.4 percent to $2.02 billion from $1.7 billion last year.