Abercrombie & Fitchs Results, Forecast Miss Expectations

Thursday, 22 Aug 2013 08:07 AM

 

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Declining traffic and weakness in girls' clothing weighed on Abercrombie & Fitch's second quarter, pushing net income down 33 percent.

The teen retailer's results missed analysts' estimates. It also gave a third-quarter earnings forecast well below Wall Street expectations.

The stock tumbled in premarket trading Thursday.

Teen retailers have struggled during their most recent quarter. Their customer base can be fickle, with constantly changing tastes in fashion and promotions causing shopper loyalty to wane.

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Not to mention many teens' clothing purchases are tied closely to how much their parents are willing to spend — and lately that's not much. Shoppers have been increasingly cautious as they continue to deal with uncertain economic conditions and absorb a 2 percentage-point increase in the Social Security payroll tax.

Abercrombie & Fitch's troubles come just a day after peer American Eagle Outfitters Inc. posted weak second-quarter results on a drop in traffic and difficulty in its women's business. The retailer also gave a third-quarter profit forecast short of analysts' expectations.

For the period ended Aug. 3, Abercrombie & Fitch Co. earned $11.4 million, or 14 cents per share. That's down from $17.1 million, or 20 cents per share, a year earlier.

Removing 2 cents per share in charges tied to its profit-improvement plans, earnings were 16 cents per share.

Analysts surveyed by FactSet expected much higher earnings of 28 cents per share.

Shares of Abercrombie & Fitch slid $9.30, or 19.9 percent, to $37.50 before the market open.

Revenue dipped 1 percent to $945.7 million from $951.4 million. U.S. sales fell 8 percent including the direct-to-consumer business. Wall Street estimated revenue of $996.7 million.

While the U.S. performance was soft, results were better elsewhere. International sales including direct-to-consumer climbed 15 percent, and direct-to-consumer sales for the whole company — including shipping and handling — increased 21 percent.

Revenue at stores open at least a year, a key indicator of a retailer's health, declined 10 percent on softness worldwide. Abercrombie & Fitch said that the figure includes direct-to-consumer sales. This metric excludes results from stores recently opened or closed.

In the U.S., revenue at stores open at least a year fell 11 percent. The figure dropped 7 percent overseas. The company said that the weakest results came in July.

Among its brands, the weakest results came from Hollister Co., which reported a 13 percent sales decline. The chain's namesake brand posted a 6 percent drop, while comparable sales for Abercrombie kids fell 3 percent. The performances include Internet and catalog sales.

Going forward, Abercrombie & Fitch anticipates third-quarter earnings of 40 cents to 45 cents per share. Analysts had predicted $1.07 per share.

The New Albany, Ohio, company said it is not giving predictions past the third quarter because it is unclear on projections due to recent traffic trends.

Abercrombie & Fitch had 1,057 stores at quarter's end.

Editor's Note: Save, shop and invest like an insider! Our experts lead the way each month in The Franklin Prosperity Report. Click here to learn more.

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