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Delivers highest first quarter net sales since 2014
Operating margin below company expectations on higher-than-expected freight and product costs
Repurchased 3.3 million shares, reducing outstanding share count by 6% from fiscal year-end 2021
Looking forward, we expect higher costs to remain a headwind through at least year-end. We expect freight relief in the fourth quarter as we anniversary increased air usage last year due to the
Details related to net income (loss) per diluted share for the first quarter are as follows:
| 2022 | 2021 | |||||||
| GAAP | $ | (0.32) | $ | 0.64 | ||||
| Excluded items, net of tax effect (1) | (0.05) | (0.03 | ) | |||||
| Adjusted non-GAAP | $ | (0.27) | $ | 0.67 | ||||
| Impact from changes in foreign currency exchange rates (2) | — | 0.05 | ||||||
| Adjusted non-GAAP constant currency | $ | (0.27) | $ | 0.72 | ||||
(1) Excluded items consist of pre-tax store asset impairment charges.
(2) The estimated impact from foreign currency is calculated by applying current period exchange rates to prior year results using a 26% tax rate.
A summary of results for the first quarter ended
- Net sales of
$813 million , up 4% as compared to last year. - Gross profit rate of 55.3%, down approximately 810 basis points as compared to last year. The year-over-year decline is driven by approximately
$80 million of higher freight costs, partially offset by higher average unit retail on lower promotions. - Operating expense, excluding other operating income, net, was up 5% compared to last year. Approximately half of the increase was due to the lapping of COVID-related rent abatements and payroll credits last year, and the other half due to an increase in marketing and digital fulfillment expenses. Operating expense as a percentage of sales increased to 56.9% from 56.2% last year.
- Operating loss of
$10 million and$6 million on a reported and adjusted non-GAAP basis, respectively, as compared to operating income of$57 million and$60 million last year, on a reported and adjusted non-GAAP basis, respectively. - Net loss per diluted share of
$0.32 and$0.27 on a reported and adjusted non-GAAP basis, respectively, as compared to net income per diluted share last year of$0.64 and$0.67 on a reported and adjusted non-GAAP basis, respectively
Net sales by brand and region for the first quarter are as follows:
| (in thousands) | 2022 | 2021 | 1 YR % Change | |||||
| Net sales by brand: | ||||||||
| Hollister (1) | $ | 428,834 | $ | 442,408 | (3)% | |||
| 383,928 | 338,997 | 13% | ||||||
| Total company | $ | 812,762 | $ | 781,405 | 4% | |||
| Net sales by region: (3) | 2022 | 2021 | 1 YR % Change | |||||
| $ | 585,106 | $ | 553,846 | 6% | ||||
| EMEA | 163,969 | 159,002 | 3% | |||||
| APAC | 29,897 | 46,046 | (35)% | |||||
| Other (4) | 33,790 | 22,511 | 50% | |||||
| International | $ | 227,656 | $ | 227,559 | 0% | |||
| Total company | $ | 812,762 | $ | 781,405 | 4% | |||
(1) Hollister includes the Hollister,
(2) Abercrombie includes the
(3) Net sales by geographic area are presented by attributing revenues to an individual country on the basis of the country in which the merchandise was sold for in-store purchases and on the basis of the shipping location provided by customers for digital orders.
(4) Other includes all sales that do not fall within
| Financial Position and Liquidity |
As of
- Cash and equivalents of
$468 million . This compares to cash and equivalents of$823 million and$909 million as ofJanuary 29, 2022 andMay 1, 2021 , respectively. - Inventories of
$563 million , an increase of approximately 45% over last year due to increased in-transit inventory, higher units on hand, and increased average unit costs driven by freight compared toMay 1, 2021 . - Long-term gross borrowings under the company’s senior secured notes of
$308 million (the “Senior Secured Notes”) which mature inJuly 2025 and bear interest at a rate of 8.75% per annum. - Borrowing available under the senior-secured asset-based revolving credit facility (the “ABL Facility”) of
$314 million . - Liquidity, comprised of cash and equivalents and borrowing available under the ABL Facility, of approximately
$0.8 billion . This compares to liquidity of$1.1 billion and$1.1 billion as ofJanuary 29, 2022 andMay 1, 2021 , respectively.
| Cash Flow and Capital Allocation |
Details related to the company’s cash flows for the year-to-date period ended
- Net cash used for operating activities of
$218 million . - Net cash used for investing activities of
$19 million . - Net cash used for financing activities of
$117 million .
In the quarter, the company returned approximately $100 million to shareholders through the repurchase of approximately 3.3 million shares. The company has
Depreciation and amortization was
| Fiscal 2022 Full Year Outlook |
To more closely align with industry practices, and the company’s plans to flex operating expenses in response to volatility in freight and other costs, beginning this quarter, the company will no longer provide a full year outlook on gross profit rate or operating expense. The following outlook replaces all previous full year guidance. For fiscal 2022, the company now expects:
- Net sales to be flat to up 2% from
$3.7 billion in 2021, down from previous outlook of up 2 to 4% driven by a combined 200 basis point adverse impact from foreign currency and an assumed inflationary impact on consumer demand, partially offset by higher-than-expected sales in Q1. - Operating margin in the range of 5 to 6%, down from previous outlook of 7 to 8% reflecting a combined 200 basis point adverse impact from higher freight and raw material costs, foreign currency, and lower sales due to an assumed inflationary impact on consumer. Mitigating these factors will be actions to drive AUR growth, reduce certain expenses, and adjust inventory flows by region in response to current market forces.
- Effective tax rate to be in the mid-30s.
- Capital expenditures of approximately
$150 million .
| Fiscal 2022 Second Quarter Outlook |
Consistent with the above, beginning this quarter, the company will no longer provide a quarterly outlook on gross profit rate or operating expense. For the second quarter of fiscal 2022, the company expects:
- Net sales to be down low-single-digits to fiscal second quarter 2021 level of
$865 million , reflecting a combined, estimated adverse impact of approximately 300 basis points from foreign currency and COVID-related lockdowns inChina and approximately 300 basis points due to an assumed impact of inflationary impact on consumer demand. - Operating margin in the range of 3 to 4% with the year-over-year decline driven by higher freight and raw material costs.
- Effective tax rate to be in the mid-to-high 30s.
| 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,” “should,” “are confident,” 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 January 29, 2022, in some cases have affected, and in the future could affect, A&F’s financial performance and could cause actual results for fiscal 2022 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: COVID‐19 has and may continue to materially adversely impact and cause disruption to our business; 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 impact on our business; failure to engage our customers, anticipate customer demand and changing fashion trends, and manage our inventory commensurately could have a material adverse impact on our business; our failure to operate effectively in a highly competitive and constantly evolving industry could have a material adverse impact on our business; fluctuations in foreign currency exchange rates could have a material adverse impact on our business; recent inflationary pressures and global supply chain constraints could continue to affect freight and other costs and could have a material adverse impact on our business; 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 geopolitical conflict, including the on-going hostilities in
| Other Information |
This document includes certain adjusted non-GAAP financial measures where management believes it to be helpful in understanding the Company's results of operations or financial position. Additional details about non-GAAP financial measures and a reconciliation of GAAP financial measures to non-GAAP financial measures can be found in the "Reporting and Use of GAAP and Non-GAAP Measures" section. As used in the presentation, "Hollister" refers to the company's Hollister,
| About |
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.
| Investor Contact: | Media Contact: | |
| (614) 283-6751 | (614) 283-6192 | |
| Investor_Relations@anfcorp.com | Public_Relations@anfcorp.com |
| Condensed Consolidated Statements of Operations | |||||||||||||
| (in thousands, except per share data) | |||||||||||||
| (Unaudited) | |||||||||||||
| Thirteen Weeks Ended | Thirteen Weeks Ended | ||||||||||||
| % of |
% of |
||||||||||||
| Net sales | $ | 812,762 | 100.0% | $ | 781,405 | 100.0% | |||||||
| Cost of sales, exclusive of depreciation and amortization | 363,216 | 44.7% | 286,271 | 36.6% | |||||||||
| Gross profit | 449,546 | 55.3% | 495,134 | 63.4% | |||||||||
| Stores and distribution expense | 337,543 | 41.5% | 316,608 | 40.5% | |||||||||
| Marketing, general and administrative expense | 122,149 | 15.0% | 120,947 | 15.5% | |||||||||
| Flagship store exit benefits | — | 0.0% | (1,100 | ) | (0.1)% | ||||||||
| Asset impairment | 3,422 | 0.4% | 2,664 | 0.3% | |||||||||
| Other operating income, net | (3,842 | ) | (0.5)% | (1,418 | ) | (0.2)% | |||||||
| Operating (loss) income | (9,726 | ) | (1.2)% | 57,433 | 7.3% | ||||||||
| Other expense, net | 7,307 | 0.9% | 8,606 | 1.1% | |||||||||
| (Loss) income before income taxes | (17,033 | ) | (2.1)% | 48,827 | 6.2% | ||||||||
| Income tax (benefit) expense | (2,187 | ) | (0.3)% | 6,121 | 0.8% | ||||||||
| Net (loss) income | (14,846 | ) | (1.8)% | 42,706 | 5.5% | ||||||||
| Less: Net income attributable to noncontrolling interests | 1,623 | 0.2% | 938 | 0.1% | |||||||||
| Net (loss) income attributable to A&F | $ | (16,469 | ) | (2.0)% | $ | 41,768 | 5.3% | ||||||
| Net (loss) income per share attributable to A&F | |||||||||||||
| Basic | $ | (0.32 | ) | $ | 0.67 | ||||||||
| Diluted | $ | (0.32 | ) | $ | 0.64 | ||||||||
| Weighted-average shares outstanding: | |||||||||||||
| Basic | 52,077 | 62,380 | |||||||||||
| Diluted | 52,077 | 65,305 | |||||||||||
Reporting and Use of GAAP and Non-GAAP Measures
The company believes that each of the non-GAAP financial measures presented 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, such as asset impairment charges, therefore supplementing 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. 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.
In addition, at times 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) digital net 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.
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 year average 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 26% tax rate.
| Schedule of Non-GAAP Financial Measures | |||||||||||
| Thirteen Weeks Ended |
|||||||||||
| (in thousands, except per share data) | |||||||||||
| (Unaudited) | |||||||||||
| GAAP (1) | Excluded items | Adjusted non-GAAP |
|||||||||
| Asset impairment, exclusive of flagship store exit charges (2) | $ | 3,422 | $ | 3,422 | $ | — | |||||
| Operating loss | (9,726 | ) | (3,422 | ) | (6,304 | ) | |||||
| Loss before income taxes | (17,033 | ) | (3,422 | ) | (13,611 | ) | |||||
| Income tax benefit (3) | (2,187 | ) | (918 | ) | (1,269 | ) | |||||
| Net loss attributable to |
$ | (16,469 | ) | $ | (2,504 | ) | $ | (13,965 | ) | ||
| Net loss per diluted share attributable to |
$ | (0.32 | ) | $ | (0.05 | ) | $ | (0.27 | ) | ||
| Diluted weighted-average shares outstanding: | 52,077 | 52,077 | |||||||||
(1) “GAAP” refers to accounting principles generally accepted in
(2) Excluded items consist of pre-tax store asset impairment charges of
(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.
| Schedule of Non-GAAP Financial Measures | |||||||||
| Thirteen Weeks Ended |
|||||||||
| (in thousands, except per share data) | |||||||||
| (Unaudited) | |||||||||
| GAAP (1) | Excluded items | Adjusted non-GAAP |
|||||||
| Asset impairment, exclusive of flagship store exit charges (2) | $ | 2,664 | $ | 2,664 | $ | — | |||
| Operating income | 57,433 | (2,664 | ) | 60,097 | |||||
| Income before income taxes | 48,827 | (2,664 | ) | 51,491 | |||||
| Income tax expense (3) | 6,121 | (449 | ) | 6,570 | |||||
| Net income attributable to |
$ | 41,768 | $ | (2,215 | ) | $ | 43,983 | ||
| Net income per diluted share attributable to |
$ | 0.64 | $ | (0.03 | ) | $ | 0.67 | ||
| Diluted weighted-average shares outstanding: | 65,305 | 65,305 | |||||||
(1) “GAAP” refers to accounting principles generally accepted in
(2) Excluded items consist of pre-tax store asset impairment charges of
(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.
| Reconciliation of Constant Currency Financial Measures | |||||||||||
| Thirteen Weeks Ended |
|||||||||||
| (in thousands, except percentage and basis point changes and per share data) | |||||||||||
| (Unaudited) | |||||||||||
| 2022 | 2021 | % Change | |||||||||
| Net sales | |||||||||||
| GAAP (1) | $ | 812,762 | $ | 781,405 | 4% | ||||||
| Impact from changes in foreign currency exchange rates (2) | — | (8,529 | ) | 1% | |||||||
| Net sales on a constant currency basis | $ | 812,762 | $ | 772,876 | 5% | ||||||
| Gross profit | 2022 | 2021 | BPS Change (3) | ||||||||
| GAAP (1) | $ | 449,546 | $ | 495,134 | (810) | ||||||
| Impact from changes in foreign currency exchange rates (2) | — | (3,283 | ) | (20) | |||||||
| Gross profit on a constant currency basis | $ | 449,546 | $ | 491,851 | (830) | ||||||
| Operating (loss) income | 2022 | 2021 | BPS Change (3) | ||||||||
| GAAP (1) | $ | (9,726 | ) | $ | 57,433 | (850) | |||||
| Excluded items (4) | (3,422 | ) | (2,664 | ) | (10) | ||||||
| Adjusted non-GAAP | $ | (6,304 | ) | $ | 60,097 | (860) | |||||
| Impact from changes in foreign currency exchange rates (2) | — | 4,341 | (50) | ||||||||
| Adjusted non-GAAP constant currency basis | $ | (6,304 | ) | $ | 64,438 | (910) | |||||
| Net income (loss) per diluted share attributable to |
2022 | 2021 | $ Change | ||||||||
| GAAP (1) | $ | (0.32 | ) | $ | 0.64 | ||||||
| Excluded items, net of tax (4) | (0.05 | ) | (0.03 | ) | (0.02) | ||||||
| Adjusted non-GAAP | $ | (0.27 | ) | $ | 0.67 | ||||||
| Impact from changes in foreign currency exchange rates (2) | — | 0.05 | (0.05) | ||||||||
| Adjusted non-GAAP constant currency basis | $ | (0.27 | ) | $ | 0.72 | ||||||
(1) “GAAP” refers to accounting principles generally accepted in
(2) The estimated impact from foreign currency 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 estimated impact from foreign currency is calculated using a 26% tax rate.
(3) The estimated basis point change has been rounded based on the percentage change.
(4) Excluded items consist of pre-tax store asset impairment charges of
| Condensed Consolidated Balance Sheets | ||||||||
| (in thousands) | ||||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and equivalents | $ | 468,378 | $ | 823,139 | $ | 909,008 | ||
| Receivables | 88,807 | 69,102 | 107,821 | |||||
| Inventories | 562,510 | 525,864 | 388,633 | |||||
| Other current assets | 93,179 | 89,654 | 78,727 | |||||
| Total current assets | 1,212,874 | 1,507,759 | 1,484,189 | |||||
| Property and equipment, net | 497,976 | 508,336 | 533,773 | |||||
| Operating lease right-of-use assets | 671,991 | 698,231 | 839,003 | |||||
| Other assets | 224,462 | 225,165 | 213,585 | |||||
| Total assets | $ | 2,607,303 | $ | 2,939,491 | $ | 3,070,550 | ||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 311,352 | $ | 374,829 | $ | 236,667 | ||
| Accrued expenses | 320,681 | 395,815 | 321,906 | |||||
| Short-term portion of operating lease liabilities | 195,599 | 222,823 | 231,750 | |||||
| Income taxes payable | 25,400 | 21,773 | 26,672 | |||||
| Total current liabilities | 853,032 | 1,015,240 | 816,995 | |||||
| Long-term liabilities: | ||||||||
| Long-term portion of operating lease liabilities | $ | 662,322 | $ | 697,264 | $ | 844,401 | ||
| Long-term borrowings, net | 303,901 | 303,574 | 344,278 | |||||
| Other liabilities | 83,243 | 86,089 | 114,926 | |||||
| Total long-term liabilities | 1,049,466 | 1,086,927 | 1,303,605 | |||||
| Total |
695,361 | 826,090 | 941,174 | |||||
| Noncontrolling interests | 9,444 | 11,234 | 8,776 | |||||
| Total stockholders’ equity | 704,805 | 837,324 | 949,950 | |||||
| Total liabilities and stockholders’ equity | $ | 2,607,303 | $ | 2,939,491 | $ | 3,070,550 | ||
| Condensed Consolidated Statements of Cash Flows | |||||||
| (in thousands, except per share data) | |||||||
| (Unaudited) | |||||||
| Thirteen Weeks Ended | |||||||
| Operating activities | |||||||
| Net cash used for operating activities | $ | (217,787 | ) | $ | (131,350 | ) | |
| Investing activities | |||||||
| Purchases of property and equipment | $ | (26,292 | ) | $ | (14,404 | ) | |
| Proceeds from sale of property and equipment | 7,751 | — | |||||
| Net cash used for investing activities | $ | (18,541 | ) | $ | (14,404 | ) | |
| Financing activities | |||||||
| Payment of debt issuance or modification costs and fees | — | (1,490 | ) | ||||
| Purchases of common stock | (100,000 | ) | (35,249 | ) | |||
| Other financing activities | (16,945 | ) | (16,452 | ) | |||
| Net cash used for financing activities | $ | (116,945 | ) | $ | (53,191 | ) | |
| Effect of foreign currency exchange rates on cash | $ | (2,617 | ) | $ | (1,021 | ) | |
| Net decrease in cash and equivalents, and restricted cash and equivalents | $ | (355,890 | ) | $ | (199,966 | ) | |
| Cash and equivalents, and restricted cash and equivalents, beginning of period | $ | 834,368 | $ | 1,124,157 | |||
| Cash and equivalents, and restricted cash and equivalents, end of period | $ | 478,478 | $ | 924,191 | |||
Store Count
| Thirteen Weeks Ended |
||||||||||||||||||
| Hollister (1) | ||||||||||||||||||
| International | International | International | Total | |||||||||||||||
| 351 | 154 | 173 | 51 | 524 | 205 | 729 | ||||||||||||
| New | 1 | 2 | 1 | — | 2 | 2 | 4 | |||||||||||
| Permanently closed | — | — | (3) | (2) | (3) | (2) | (5) | |||||||||||
| 352 | 156 | 171 | 49 | 523 | 205 | 728 | ||||||||||||
(1) Hollister includes the company’s Hollister and Gilly Hicks brands. Locations with
(2)
(3) This store count excludes one international third-party operated multi-brand outlet store as of each of
Source: Abercrombie & Fitch Management Co.