Abercrombie & Fitch Cuts Forecast as Q1 Sales Fall

The company blamed the sharp drop in sales on a “shortage” of inventory.

Abercrombie & Fitch Co. cut its annual earnings forecast as it blamed a sharp drop in first-quarter sales on a “shortage” of inventory.

This story first appeared in the May 28, 2013 issue of WWD.  Subscribe Today.

But Michael Jeffries, the teen retailer’s chief executive officer, insisted the company is back on track and improving its speed-to-market in order to keep up with fast-fashion rivals.

Although losses narrowed in the quarter, shares of Abercrombie tumbled 8 percent to $50.02 Friday, even though Jeffries vowed to Wall Street analysts on a conference call that the retailer’s inventory woes were “largely” behind it.

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““We experienced some unanticipated delays in spring due to a couple of factors,” said Jeffries. “One of which was a function of our transitioning to faster reaction times. As a result, it took a little bit longer than anticipated to flow in some of our spring deliveries. Also, in hindsight, I believe that the first-quarter spring inventory plan was somewhat low and this resulted in many items which did not have the necessary depth to drive the business.”

The company is in a better inventory position in the second quarter with “more depth” in “key items,” the ceo said, adding: “I believe that, that’s going to get even better for back-to-school and believe it or not, superb by Christmas.”

For the first quarter ended May 4, the New Albany, Ohio-based retailer registered a $7.2 million net loss, or 9 cents a diluted share, compared with a year-ago loss of $21.3 million, or 25 cents a share.

Sales slid 8.9 percent to $838.8 million from $921.2 million a year earlier. Analysts expected a 5 cent loss on sales of $941.7 million.

Impacted by the inventory shortage, overall comparable-store sales declined 15 percent. By brand, comps at Abercrombie & Fitch, abercrombie kids and Hollister Co. fell 13 percent, 5 percent and 18 percent, respectively.

Higher-priced spring merchandise and lower product costs lifted overall gross margin to 65.9 percent of sales from a year-ago margin of 58.7 percent.

“We are also making good progress on our cross-functional initiatives, which we expect will generate substantial operating margin improvement on a sustainable, long-term basis,” said Jeffries.

Still, Abercrombie was bearish on its full-year financial results, and said it expects annual EPS of between $3.15 and $3.25, which is lower than the $3.49 per share estimate forecasted by analysts and the $3.35 to $3.45 the company projected in February.