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A summary of results for the first quarter ended
- Net sales increased to
$734.0 million , including the adverse impact from changes in foreign currency exchange rates of approximately$16 million or 2%. - Positive comparable sales of 1%, on top of 5% last year.
- Gross profit rate of 60.5%, flat to last year.
- Operating expense, excluding other operating income, of
$472.0 million leveraged 230 basis points on a GAAP basis and 160 basis points on an adjusted non-GAAP basis. - Operating loss of
$27.3 million . Operating loss margin improved 210 basis points from last year to 3.7%. Excluding certain items, adjusted non-GAAP operating loss margin improved 130 basis points from last year. - Net loss per diluted share was
$0.29 compared to$0.62 last year and was adversely impacted by year-over-year changes in foreign currency exchange rates, net of hedging, of approximately$0.02 . Excluding certain items, adjusted non-GAAP net loss per diluted share last year was$0.56 .
"We are focused on our transformation initiatives, with global store network optimization a key priority. We continue to believe in stores and are committed to delivering intimate, omni-channel brand experiences that closely align with our customers’ needs. In line with our strategy, we are announcing plans to close three additional flagship locations, bringing the total to five since 2017. Except for the charges from these flagship store actions, we remain on track to achieve our previously communicated fiscal 2019 outlook and continue to lay the foundation to achieving our fiscal 2020 targets."
Details related to net loss per diluted share for the first quarter are as follows:
2019 | 2018 | |||
GAAP | $(0.29) | $(0.62) | ||
Excluded items, net of tax effect (1) | — | (0.06) | ||
Adjusted non-GAAP | $(0.29) | $(0.56) |
(1) | Excluded items last year consist of pre-tax legal charges of $5.6 million. There were no excluded items in the current year. |
Details related to sales for the first quarter are as follows:
(in thousands) | 2019 | 2018 | % Change | Comparable sales (1) | |||||
Net sales by brand: | |||||||||
Hollister | $ | 428,448 | $ | 423,628 | 1% | 2% | |||
Abercrombie (2) | 305,524 | 307,271 | (1)% | 1% | |||||
Total company | $ | 733,972 | $ | 730,899 | 0% | 1% | |||
Net sales by region: | |||||||||
United States | $ | 469,658 | $ | 449,126 | 5% | 4% | |||
International | 264,314 | 281,773 | (6)% | (4)% | |||||
Total company | $ | 733,972 | $ | 730,899 | 0% | 1% |
(1) | Comparable sales are calculated on a constant currency basis. Refer to "REPORTING AND USE OF GAAP AND NON-GAAP MEASURES," for further discussion. | |
(2) | Abercrombie includes the Abercrombie & Fitch and abercrombie kids brands. |
Capital Expenditures and Depreciation and Amortization |
For the first quarter ended
- Capital expenditures were
$43.9 million as compared to$23.7 million last year. - Depreciation and amortization expense was
$41.0 million as compared to$47.6 million last year.
Cash and Equivalents, Gross Borrowings and Inventories |
As of
- Cash and equivalents of
$586.1 million as compared to$592.0 million last year. - Gross borrowings under the company's term loan of
$253.3 million as compared to$253.3 million last year. - Inventories of
$432.4 million , an increase of approximately 7% over last year, primarily driven by a year-over-year increase in in-transit inventory.
Adoption of New Lease Accounting Standard |
On
Upon adoption of this standard, the company increased total assets and total liabilities each by approximately
The company’s outlook provided below incorporates the estimated impacts resulting from the adoption of the new lease accounting standard.
Global Store Network Optimization |
Reflecting a continued focus on global store network optimization, the company will be ceasing operations of its SoHo Hollister flagship store in
Details related to the timing of these store closures are as follows:
Pedder Street , Hong Kong A&F flagship store closure completed in the first quarter of fiscal 2017.Copenhagen, Denmark A&F flagship store closure completed in the first quarter of fiscal 2019.- SoHo Hollister flagship store in
New York City is expected to close in the second quarter of fiscal 2019. Milan, Italy A&F flagship store is expected to close by the end of fiscal 2019.Fukuoka, Japan A&F flagship store is expected to close in the back half of fiscal 2020.
In aggregate, the
The company remains on track to deliver approximately 85 new experiences through new stores, remodels and right-sizes this year. The company’s outlook provided below incorporates the estimated impacts resulting from these new experiences, the flagship closures detailed above and any other potential store closures.
Other Developments |
As previously announced, on
The company has returned
Fiscal 2019 Full Year Outlook |
For fiscal 2019, the company expects:
- Net sales to be up in the range of 2% to 4%, driven by positive comparable sales and net new store contribution, partially offset by an adverse impact from changes in foreign currency exchange rates of approximately
$30 million of which approximately$16 million was reflected in first quarter results. - Comparable sales to be up low-single digits, on top of 3% last year.
- Gross profit rate to rise slightly from the fiscal 2018 rate of 60.2%, assuming only the current tariffs in place.
- Operating expense, excluding other operating income, to be up in the range of 4% to 5% from fiscal 2018 adjusted non-GAAP operating expense of
$2.03 billion , including net lease-related charges related to the flagship store actions taken in the second quarter of approximately$45 million . If not for the$45 million resulting from these actions, the company would have expected operating expense to be consistent with previously issued expectations of up approximately 2% from fiscal 2018 adjusted non-GAAP operating expense. - Effective tax rate to be in the mid 20s.
- Diluted weighted-average shares outstanding of approximately 68 million shares, excluding the effect of potential share buybacks.
- Capital investments of approximately
$200 million .
Fiscal 2019 Second Quarter Outlook |
For the second quarter of fiscal 2019, the company expects:
- Net sales to be flat to up 2%, reflecting an adverse impact from changes in foreign currency exchange rates of approximately
$10 million . - Comparable sales to be approximately flat, on 3% last year.
- Gross profit rate to be down approximately 100 basis points compared to 60.2% last year, assuming only the current tariffs in place.
- Operating expense, excluding other operating income, to be up approximately 10% from fiscal 2018 adjusted non-GAAP operating expense of
$498 million , including net lease-related charges related to the flagship store actions taken in the second quarter of approximately$45 million . If not for the$45 million resulting from these actions, the company would have expected operating expense to be flat to up 1% from fiscal 2018 adjusted non-GAAP operating expense. - Effective tax rate to be in the mid 20s.
Conference Call |
Today at
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 |
A&F cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Press Release or made by management or spokespeople of A&F involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond the company's control. Words such as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," and similar expressions may identify forward-looking statements. Except as may be required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements. The following factors, in addition to those disclosed in “ITEM 1A. RISK FACTORS” of A&F's Annual Report on Form 10-K for the fiscal year ended February 2, 2019, in some cases have affected, and in the future could affect, the company's financial performance and could cause actual results for fiscal 2019 and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this Press Release or otherwise made by management: changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits, could have a material adverse effect on our business, results of operations and liquidity; failure to anticipate customer demand and changing fashion trends and to manage our inventory commensurately could adversely impact our sales levels and profitability; our market share may be negatively impacted by increasing competition and pricing pressures from companies with brands or merchandise competitive with ours; fluctuations in foreign currency exchange rates could adversely impact our financial condition and results of operations; our ability to attract customers to our stores depends, in part, on the success of the shopping malls or area attractions that our stores are located in or around; the impact of war, acts of terrorism or civil unrest could have a material adverse effect on our operating results and financial condition; the expansion of our direct-to-consumer sales channels and omnichannel initiatives are significant components of our growth strategy, and the failure to successfully develop our position across all channels could have an adverse impact on our results of operations; our international growth strategy and ability to conduct business in international markets may be adversely affected by legal, regulatory, political and economic risks; failure to successfully implement our strategic plans could have a negative impact on our growth and profitability; failure to protect our reputation could have a material adverse effect on our brands; our business could suffer if our information technology systems are disrupted or cease to operate effectively; we may be exposed to risks and costs associated with cyber-attacks, data protection, credit card fraud and identity theft that would cause us to incur unexpected expenses and reputation loss; our reliance on DCs makes us susceptible to disruptions or adverse conditions affecting our supply chain; changes in the cost, availability and quality of raw materials, labor, transportation, and trade relations could cause manufacturing delays and increase our costs; we depend upon independent third parties for the manufacture and delivery of all our merchandise, and a disruption of the manufacture or delivery of our merchandise could result in lost sales and could increase our costs; we rely on the experience and skills of our senior executive officers and associates, the loss of whom could have a material adverse effect on our business; extreme weather conditions, including natural disasters, pandemic disease and other unexpected events, could negatively impact our facilities, systems and stores, as well as the facilities and systems of our vendors and manufacturers, which could result in an interruption to our business and adversely affect our operating results; fluctuations in our tax obligations and effective tax rate may result in volatility in our results of operations; our litigation exposure could have a material adverse effect on our financial condition and results of operations; failure to adequately protect our trademarks could have a negative impact on our brand image and limit our ability to penetrate new markets; changes in the regulatory or compliance landscape and compliance with changing regulations for accounting, corporate governance and public disclosure could adversely affect our business, results of operations and reported financial results; and, our Asset-Based Revolving Credit Agreement and our Term Loan Agreement include restrictive covenants that limit our flexibility in operating our business.
About Abercrombie & Fitch Co. |
The brands share a commitment to offering products of enduring quality and exceptional comfort that allow consumers around the world to express their own individuality and style. The company operates over 850 stores under these brands across
Investor Contact: | Media Contact: | |
Pamela Quintiliano | Ian Bailey | |
Abercrombie & Fitch Co. | Abercrombie & Fitch Co. | |
(614) 283-6751 | (614) 283-6192 | |
Investor_Relations@anfcorp.com | Public_Relations@anfcorp.com |
Abercrombie & Fitch Co. | ||||||||||||||||||||||||||||||||||||||
Condensed Consolidated Statements of Operations | ||||||||||||||||||||||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||||
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||||||||||||||||||||||||||||
May 4, 2019 | % of Net Sales |
May 5, 2018 | % of Net Sales |
|||||||||||||||||||||||||||||||||||
Net sales | $ | 733,972 | 100.0 | % | $ | 730,899 | 100.0 | % | ||||||||||||||||||||||||||||||
Cost of sales, exclusive of depreciation and amortization | 289,882 | 39.5 | % | 288,554 | 39.5 | % | ||||||||||||||||||||||||||||||||
Gross profit | 444,090 | 60.5 | % | 442,345 | 60.5 | % | ||||||||||||||||||||||||||||||||
Stores and distribution expense | 358,356 | 48.8 | % | 361,155 | 49.4 | % | ||||||||||||||||||||||||||||||||
Marketing, general and administrative expense | 111,947 | 15.3 | % | 124,897 | 17.1 | % | ||||||||||||||||||||||||||||||||
Asset impairment | 1,662 | 0.2 | % | 1,056 | 0.1 | % | ||||||||||||||||||||||||||||||||
Other operating income, net | (617 | ) | (0.1 | )% | (2,560 | ) | (0.4 | )% | ||||||||||||||||||||||||||||||
Operating loss | (27,258 | ) | (3.7 | )% | (42,203 | ) | (5.8 | )% | ||||||||||||||||||||||||||||||
Interest expense, net | 616 | 0.1 | % | 3,018 | 0.4 | % | ||||||||||||||||||||||||||||||||
Loss before income taxes | (27,874 | ) | (3.8 | )% | (45,221 | ) | (6.2 | )% | ||||||||||||||||||||||||||||||
Income tax benefit | (9,588 | ) | (1.3 | )% | (3,713 | ) | (0.5 | )% | ||||||||||||||||||||||||||||||
Net loss | (18,286 | ) | (2.5 | )% | (41,508 | ) | (5.7 | )% | ||||||||||||||||||||||||||||||
Less: Net income attributable to noncontrolling interests | 869 | 0.1 | % | 953 | 0.1 | % | ||||||||||||||||||||||||||||||||
Net loss attributable to Abercrombie & Fitch Co. | $ | (19,155 | ) | (2.6 | )% | $ | (42,461 | ) | (5.8 | )% | ||||||||||||||||||||||||||||
Net loss per share attributable to Abercrombie & Fitch Co.: | ||||||||||||||||||||||||||||||||||||||
Basic | $ | (0.29 | ) | $ | (0.62 | ) | ||||||||||||||||||||||||||||||||
Diluted | $ | (0.29 | ) | $ | (0.62 | ) | ||||||||||||||||||||||||||||||||
Weighted-average shares outstanding: | ||||||||||||||||||||||||||||||||||||||
Basic | 66,540 | 68,500 | ||||||||||||||||||||||||||||||||||||
Diluted | 66,540 | 68,500 |
Abercrombie & Fitch Co. | ||||||||||||||||||||||||||||
Condensed Consolidated Balance Sheets | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
May 4, 2019 (1) | February 2, 2019 | May 5, 2018 | ||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||
Cash and equivalents | $ | 586,133 | $ | 723,135 | $ | 591,960 | ||||||||||||||||||||||
Receivables | 82,026 | 73,112 | 72,795 | |||||||||||||||||||||||||
Inventories | 432,350 | 437,879 | 405,107 | |||||||||||||||||||||||||
Other current assets | 71,803 | 101,824 | 104,806 | |||||||||||||||||||||||||
Total current assets | 1,172,312 | 1,335,950 | 1,174,668 | |||||||||||||||||||||||||
Property and equipment, net | 633,686 | 694,855 | 709,007 | |||||||||||||||||||||||||
Operating lease right-of-use assets | 1,252,249 | — | — | |||||||||||||||||||||||||
Other assets | 364,719 | 354,788 | 381,293 | |||||||||||||||||||||||||
Total assets | $ | 3,422,966 | $ | 2,385,593 | $ | 2,264,968 | ||||||||||||||||||||||
Liabilities and stockholders' equity | ||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||
Accounts payable | $ | 180,041 | $ | 226,878 | $ | 166,577 | ||||||||||||||||||||||
Accrued expenses | 240,050 | 293,579 | 262,964 | |||||||||||||||||||||||||
Short-term portion of operating lease liabilities | 278,392 | — | — | |||||||||||||||||||||||||
Short-term portion of deferred lease credits | — | 19,558 | 19,269 | |||||||||||||||||||||||||
Income taxes payable | 16,022 | 18,902 | 12,784 | |||||||||||||||||||||||||
Total current liabilities | 714,505 | 558,917 | 461,594 | |||||||||||||||||||||||||
Long-term liabilities: | ||||||||||||||||||||||||||||
Long-term portion of operating lease liabilities | $ | 1,207,103 | $ | — | $ | — | ||||||||||||||||||||||
Long-term portion of borrowings, net | 250,736 | 250,439 | 249,962 | |||||||||||||||||||||||||
Long-term portion of deferred lease credits | — | 76,134 | 73,660 | |||||||||||||||||||||||||
Leasehold financing obligations | — | 46,337 | 48,955 | |||||||||||||||||||||||||
Other liabilities | 145,659 | 235,145 | 241,951 | |||||||||||||||||||||||||
Total long-term liabilities | 1,603,498 | 608,055 | 614,528 | |||||||||||||||||||||||||
Total Abercrombie & Fitch Co. stockholders' equity | 1,094,839 | 1,208,900 | 1,178,267 | |||||||||||||||||||||||||
Noncontrolling interests | 10,124 | 9,721 | 10,579 | |||||||||||||||||||||||||
Total stockholders' equity | 1,104,963 | 1,218,621 | 1,188,846 | |||||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 3,422,966 | $ | 2,385,593 | $ | 2,264,968 |
(1) | The company adopted the new lease accounting standard in the first quarter of fiscal year 2019 using the modified retrospective transition method and elected the option to not restate comparative period financial statements. See "Adoption of New Lease Accounting Standard" for further detail. |
Reporting and Use of GAAP and Non-GAAP Measures
The company believes that each of the non-GAAP financial measures presented in this news release are useful to investors as they provide a measure of the company’s operating performance excluding the effect of certain items which the company believes do not reflect its future operating outlook, and therefore supplement investors' understanding of comparability of operations across periods. Management used these non-GAAP financial measures during the periods presented to assess the company's performance and to develop expectations for future operating performance. The company also provides certain financial information on a constant currency basis to enhance investors' understanding of underlying business trends and operating performance, by removing the impact of foreign currency exchange rate fluctuations. The effect from foreign currency, calculated on a constant currency basis, is determined by applying current period exchange rates to prior year results and is net of the year-over-year impact from hedging. The per diluted share effect from foreign currency is calculated using a 27% tax rate. In addition, the company provides comparable sales, defined as the percentage year-over-year change in the aggregate of: (1) sales for stores that have been open as the same brand at least one year and whose square footage has not been expanded or reduced by more than 20% within the past year, with prior year’s net sales converted at the current year’s foreign currency exchange rate to remove the impact of foreign currency rate fluctuation, and (2) direct-to-consumer sales with prior year’s net sales converted at the current year’s foreign currency exchange rate to remove the impact of foreign currency rate fluctuation. Non-GAAP financial measures should be used supplemental to, and not as an alternative to, the company's GAAP financial results, and may not be calculated in the same manner as similar measures presented by other companies.
Abercrombie & Fitch Co. | ||||||||||||||||||||||||||||
Schedule of Non-GAAP Financial Measures | ||||||||||||||||||||||||||||
Thirteen Weeks Ended May 5, 2018 | ||||||||||||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
GAAP (1) | Excluded items |
Adjusted non-GAAP |
||||||||||||||||||||||||||
Marketing, general and administrative expense (2) | $ | 124,897 | $ | 5,600 | $ | 119,297 | ||||||||||||||||||||||
Operating loss | (42,203 | ) | (5,600 | ) | (36,603 | ) | ||||||||||||||||||||||
Loss before income taxes | (45,221 | ) | (5,600 | ) | (39,621 | ) | ||||||||||||||||||||||
Income tax benefit (3) | (3,713 | ) | (1,541 | ) | (2,172 | ) | ||||||||||||||||||||||
Net loss attributable to Abercrombie & Fitch Co. | $ | (42,461 | ) | $ | (4,059 | ) | $ | (38,402 | ) | |||||||||||||||||||
Net loss per diluted share attributable to Abercrombie & Fitch Co. | $ | (0.62 | ) | $ | (0.06 | ) | $ | (0.56 | ) | |||||||||||||||||||
Diluted weighted-average shares outstanding | 68,500 | 68,500 |
(1) | "GAAP" refers to accounting principles generally accepted in the United States of America. | |
(2) | Excluded items consist of legal charges of $5.6 million in connection with a proposed settlement of a class action claim, which received final court approval and was paid in the fourth quarter of fiscal 2018. | |
(3) | The tax effect of excluded items is the difference between the tax provision calculated on a GAAP basis and an adjusted non-GAAP basis. |
Store Count Activity
Thirteen Weeks Ended May 4, 2019 | ||||||||||||||||||||||||||||||||||||||||||||
Hollister (1) | Abercrombie (2) | Total | ||||||||||||||||||||||||||||||||||||||||||
United States | International | United States | International | United States | International | |||||||||||||||||||||||||||||||||||||||
February 2, 2019 | 393 | 149 | 270 | 49 | 663 | 198 | ||||||||||||||||||||||||||||||||||||||
New | 1 | — | — | — | 1 | — | ||||||||||||||||||||||||||||||||||||||
Closed | (1 | ) | — | (3 | ) | (1 | ) | (4 | ) | (1 | ) | |||||||||||||||||||||||||||||||||
May 4, 2019 | 393 | 149 | 267 | 48 | 660 | 197 |
(1) | Locations with Gilly Hicks carveouts within Hollister stores are represented as a single store count. Excludes nine international franchise stores as of May 4, 2019 and eight international franchise stores as of February 2, 2019. Excludes two U.S. Company operated Gilly Hicks pop-up stores as of May 4, 2019. | |
(2) | Abercrombie includes the company's Abercrombie & Fitch and abercrombie kids brands. Locations with abercrombie kids carveouts within Abercrombie & Fitch stores are represented as a single store count. Excludes seven international franchise stores as of each of May 4, 2019 and February 2, 2019. |
Source: Abercrombie & Fitch Company