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A&F Profits Up, but Misses Analysts’ Estimates

The teen retailer is opening more Hollister concept stores this year, expanding into the Middle East, Australia and Japan.

A shopper at an Abercrombie & Fitch Co. store.

Abercrombie & Fitch Co.’s fourth-quarter income more than tripled on improving net sales, boosted by its international direct-to-consumer business.

This story first appeared in the February 25, 2013 issue of WWD.  Subscribe Today.

The New Albany, Ohio-based teen retailer on Friday posted a profit of $157.2 million, or $1.95 a diluted share, for the three months ended Feb. 2, compared with income of $45.8 million, or 52 cents, a year ago. The year-ago period included 50 cents a share in asset-impairment charges and other one-time expenses. Excluding charges related to an inventory accounting change, write-downs and other items, earnings totaled $2.21, up from $1.12, the retailer said.

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Fourth-quarter sales increased 10.5 percent to $1.47 billion from $1.33 billion a year ago. The company said comparable sales were flat for the quarter, with retail comps down 1 percent and comps at the direct-to-consumer channel up 5 percent. On the international front, comp sales fell 3 percent, comprised of a 14 percent retail comps decline and a 52 percent gain in comps for the direct channel. International sales represent one-third of Abercrombie’s business.

For the year, net income rose 64.7 percent to $237 million, or $2.85 a diluted share, on a net sales gain of 8.5 percent to $4.51 billion.

Analysts expected fourth-quarter earnings per share of $1.96 on sales of $1.49 billion.

Michael S. Jeffries, chairman and chief executive officer, told Wall Street analysts that the U.S. retail environment was “challenging” over the holiday period.

He also disclosed: “With regard to insight and intelligence, we are now engaged in our first global market research study. Our goal is to better understand our customers’ perceptions of us as well as our key competitors. Geographically, the scope includes North America, Western Europe and Asia.”

As for customer relationship management, Jeffries said the firm’s “CRM file now contains over 10 million contacts. From a social media perspective, we have also now exceeded the 10 millionth fan milestone on Facebook for Hollister, and for the second year in a row, Hollister was a top-five, non-paid trending topic on Twitter during Black Friday.”

Jeffries, in response to a query from an analyst, said that the company early in the season isn’t bringing in much inventory and is quickly turning the merchandise on the floor, but intends to “increase inventory levels through deeper buys as we proceed through the quarter. We’ll be very happy with where we are from an inventory level perspective in second quarter. That’s one of the reasons for my optimism about second quarter becoming very much better than first quarter.”

Regarding its real estate plans for the year, the company expects to open A&F flagship locations in Seoul and Shanghai, as well as 20 international Hollister stores, including its first Hollister store in the Middle East. The initial Middle Eastern stores will be in Dubai, with expansion anticipated in Abu Dhabi and Kuwait. It also will open the first Hollister stores in Australia and Japan. Total capital expenditures for the year are expected to be in the $200 million range. The company will close between 40 and 50 stores in the U.S. during the year, mostly through natural lease expirations.

The company currently operates 285 Abercrombie & Fitch stores, 150 Abercrombie Kids stores, 589 Hollister locations and 27 Gilly Hicks sites.

For fiscal 2013, A&F is projecting EPS of between $3.35 and $3.45, reflecting its new cost method of accounting for inventory.