WWD.com/business-news/financial/abercrombie-fitch-cuts-loss-6952123/
government-trade
government-trade

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.

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.

RELATED CONTENT: Click Here for More Earnings Coverage >>

““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.