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A summary of results for the second quarter ended
- Net sales of
$698 million , down 17% as compared to last year, reflecting the adverse impact of COVID-19 on store sales. - Digital net sales increased 56% to
$386 million , reflecting robust growth in every month of the quarter. - Gross profit rate improved 140 basis points to 60.7% on lower promotional and clearance activity.
- Operating expense leveraged, reflecting an ongoing focus on tightly managing costs. Operating expense as a percentage of sales decreased 490 basis points and 610 basis points on a reported and adjusted non-GAAP basis, respectively, reflecting the adverse impact from flagship store exit charges last year of approximately 530 basis points.
- Operating income improved to
$14 million and$22 million on a reported and adjusted non-GAAP basis, respectively, as compared to an operating loss last year of$39 million , which reflected$45 million of flagship store exit charges. - Net income per diluted share improved to
$0.09 and$0.23 on a reported and adjusted non-GAAP basis, respectively, as compared to net loss per diluted share last year of$0.48 , which reflected the adverse impact from flagship store exit charges of approximately $0.50 per diluted share, net of estimated tax effect. - Generated positive operating cash flows of
$187 million during the second quarter endedAugust 1, 2020 , ending the quarter with$767 million of cash and equivalents and liquidity of approximately$1.1 billion .
“We ended the quarter with approximately
“We are proud of our recent execution, although cognizant and humbled by the many unknowns we as individuals and as a company continue to face. Looking ahead, the physical and mental health and safety of our customers, associates and communities remains a top priority. We will continue to be vigilant, thoughtfully managing operations while leveraging our strong liquidity position to strategically invest in critical functions that support our future global growth opportunities.”
Details related to net income (loss) per diluted share for the second quarter are as follows:
2020 | 2019 (1) | |||||||
GAAP | $ | 0.09 | $ | (0.48 | ) | |||
Excluded items, net of tax effect (2) | (0.15 | ) | — | |||||
Adjusted non-GAAP | $ | 0.23 | $ | (0.48 | ) | |||
Benefit from changes in foreign currency exchange rates (3) | — | 0.02 | ||||||
Adjusted non-GAAP constant currency | $ | 0.23 | $ | (0.46 | ) |
(1) | Results include the adverse impact from flagship store exit charges of approximately $0.50 per diluted share, net of estimated tax effect. |
(2) | Excluded items this year consist of certain pre-tax store impairment charges and the tax effect of pre-tax excluded items. |
(3) | The estimated impact from foreign currency is calculated by applying current period exchange rates to prior year results using a 26% tax rate. |
Net sales by brand and region for the second quarter are as follows:
(in thousands) | 2020 | 2019 | % Change | |||||||
Net sales by brand: | ||||||||||
Hollister | $ | 429,248 | $ | 504,758 | (15 | )% | ||||
269,080 | 336,320 | (20 | )% | |||||||
Total company | $ | 698,328 | $ | 841,078 | (17 | )% | ||||
Net sales by region: | 2020 | 2019 | % Change | |||||||
$ | 458,671 | $ | 543,472 | (16 | )% | |||||
EMEA | 171,297 | 200,642 | (15 | )% | ||||||
APAC | 41,814 | 67,350 | (38 | )% | ||||||
Other | 26,546 | 29,614 | (10 | )% | ||||||
International | $ | 239,657 | $ | 297,606 | (19 | )% | ||||
Total company | $ | 698,328 | $ | 841,078 | (17 | )% |
(1) |
Financial Position and Liquidity |
As of
- Cash and equivalents of
$767 million . This compares to cash and equivalents of$671 million and$500 million as ofFebruary 1, 2020 andAugust 3, 2019 , respectively. - Inventories of
$453 million , down 7% as compared toAugust 3, 2019 . - Long-term gross borrowings under the company’s senior secured notes of
$350 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
$295 million . - Liquidity, comprised of cash and equivalents and borrowing available under the ABL Facility, of
$1.061 billion . This compares to liquidity of$914 million and$810 million as ofFebruary 1, 2020 andAugust 3, 2019 , respectively.
Cash Flow and Capital Allocation |
Details related to the company’s cash flows for the year-to-date period ended
- Net cash provided by operating activities of
$96 million , reflecting proceeds from withdrawing the majority of excess funds from the company’s Rabbi Trust assets of$50 million in the first quarter endedMay 2, 2020 and$187 million of cash generated in the second quarter endedAugust 1, 2020 . - Net cash used for investing activities of
$76 million . Based on actions taken, the company expects capital expenditures for fiscal 2020 to be approximately$100 million as compared to$203 million of capital expenditures in fiscal 2019. - Net cash provided by financing activities of
$71 million , reflecting$100 million of cash used in the second quarter endedAugust 1, 2020 as proceeds from the issuance of the Senior Secured Notes of$350 million were used, along with existing cash on hand, to repay the then outstanding borrowings under the credit facilities.
The company has returned
Depreciation and amortization was
Outlook |
The company has seen, and expects to continue to see, material adverse impacts as a result of COVID-19. As a result, for the third quarter of fiscal 2020, the company expects net sales to be down in the range of 15% to 20% as compared to last year.
As the current circumstances and the impacts of COVID-19 on the company’s operations, including the duration and impact on overall customer demand, are dynamic, the company is not providing additional details for the third quarter or full year of fiscal 2020.
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 1, 2020 and Current Report on Form 8-K filed with the
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. The company operates approximately 850 stores under these brands across
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 | $ | 698,328 | 100.0 | % | $ | 841,078 | 100.0 | % | |||||
Cost of sales, exclusive of depreciation and amortization | 274,720 | 39.3 | % | 342,445 | 40.7 | % | |||||||
Gross profit | 423,608 | 60.7 | % | 498,633 | 59.3 | % | |||||||
Stores and distribution expense | 310,370 | 44.4 | % | 376,347 | 44.7 | % | |||||||
Marketing, general and administrative expense | 97,252 | 13.9 | % | 115,694 | 13.8 | % | |||||||
Flagship store exit (benefits) charges | (3,884 | ) | (0.6 | )% | 44,994 | 5.3 | % | ||||||
Asset impairment, exclusive of flagship store exit charges | 8,083 | 1.2 | % | 715 | 0.1 | % | |||||||
Other operating (income) loss, net | (2,356 | ) | (0.3 | )% | 367 | 0.0 | % | ||||||
Operating income (loss) | 14,143 | 2.0 | % | (39,484 | ) | (4.7 | )% | ||||||
Interest expense, net | 7,098 | 1.0 | % | 1,370 | 0.2 | % | |||||||
Income (loss) before income taxes | 7,045 | 1.0 | % | (40,854 | ) | (4.9 | )% | ||||||
Income tax expense (benefit) | 1,253 | 0.2 | % | (11,330 | ) | (1.3 | )% | ||||||
Net income (loss) | 5,792 | 0.8 | % | (29,524 | ) | (3.5 | )% | ||||||
Less: Net income attributable to noncontrolling interests | 328 | 0.0 | % | 1,618 | 0.2 | % | |||||||
Net income (loss) attributable to |
$ | 5,464 | 0.8 | % | $ | (31,142 | ) | (3.7 | )% | ||||
Net income (loss) per share attributable to |
|||||||||||||
Basic | $ | 0.09 | $ | (0.48 | ) | ||||||||
Diluted | $ | 0.09 | $ | (0.48 | ) | ||||||||
Weighted-average shares outstanding: | |||||||||||||
Basic | 62,527 | 65,156 | |||||||||||
Diluted | 63,286 | 65,156 |
Condensed Consolidated Statements of Operations | |||||||||||||
(in thousands, except per share data) | |||||||||||||
(Unaudited) | |||||||||||||
Twenty-six Weeks Ended | Twenty-six Weeks Ended | ||||||||||||
% of | % of | ||||||||||||
Net sales | $ | 1,183,687 | 100.0 | % | $ | 1,575,050 | 100.0 | % | |||||
Cost of sales, exclusive of depreciation and amortization | 495,934 | 41.9 | % | 632,327 | 40.1 | % | |||||||
Gross profit | 687,753 | 58.1 | % | 942,723 | 59.9 | % | |||||||
Stores and distribution expense | 632,494 | 53.4 | % | 732,959 | 46.5 | % | |||||||
Marketing, general and administrative expense | 205,509 | 17.4 | % | 227,641 | 14.5 | % | |||||||
Flagship store exit (benefits) charges | (4,427 | ) | (0.4 | )% | 46,738 | 3.0 | % | ||||||
Asset impairment, exclusive of flagship store exit charges | 51,011 | 4.3 | % | 2,377 | 0.2 | % | |||||||
Other operating income, net | (1,850 | ) | (0.2 | )% | (250 | ) | 0.0 | % | |||||
Operating loss | (194,984 | ) | (16.5 | )% | (66,742 | ) | (4.2 | )% | |||||
Interest expense, net | 10,469 | 0.9 | % | 1,986 | 0.1 | % | |||||||
Loss before income taxes | (205,453 | ) | (17.4 | )% | (68,728 | ) | (4.4 | )% | |||||
Income tax expense (benefit) | 32,786 | 2.8 | % | (20,918 | ) | (1.3 | )% | ||||||
Net loss | (238,239 | ) | (20.1 | )% | (47,810 | ) | (3.0 | )% | |||||
Less: Net income attributable to noncontrolling interests | 445 | 0.0 | % | 2,487 | 0.2 | % | |||||||
Net loss attributable to |
$ | (238,684 | ) | (20.2 | )% | $ | (50,297 | ) | (3.2 | )% | |||
Net loss per share attributable to |
|||||||||||||
Basic | $ | (3.82 | ) | $ | (0.76 | ) | |||||||
Diluted | $ | (3.82 | ) | $ | (0.76 | ) | |||||||
Weighted-average shares outstanding: | |||||||||||||
Basic | 62,543 | 65,848 | |||||||||||
Diluted | 62,543 | 65,848 | |||||||||||
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 certain asset impairment charges related to the company’s flagship stores and significant impairments primarily attributable to the COVID-19 pandemic, 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) 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.
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) | $ | 8,083 | $ | 8,083 | $ | — | |||||
Operating income | 14,143 | (8,083 | ) | 22,226 | |||||||
Income before income taxes | 7,045 | (8,083 | ) | 15,128 | |||||||
Income tax expense (3) | 1,253 | 1,166 | 87 | ||||||||
Net income attributable to |
$ | 5,464 | $ | (9,249 | ) | $ | 14,713 | ||||
Net income per diluted share attributable to |
$ | 0.09 | $ | (0.15 | ) | $ | 0.23 | ||||
Diluted weighted-average shares outstanding: | 63,286 | 63,286 |
(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 | |||||||||||
Twenty-six 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) | $ | 51,011 | $ | 51,011 | $ | — | |||||
Operating loss | (194,984 | ) | (51,011 | ) | (143,973 | ) | |||||
Loss before income taxes | (205,453 | ) | (51,011 | ) | (154,442 | ) | |||||
Income tax expense (3) | 32,786 | (3,266 | ) | 36,052 | |||||||
Net loss attributable to |
$ | (238,684 | ) | $ | (47,745 | ) | $ | (190,939 | ) | ||
Net loss per diluted share attributable to |
$ | (3.82 | ) | $ | (0.76 | ) | $ | (3.05 | ) | ||
Diluted weighted-average shares outstanding: | 62,543 | 62,543 |
(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) | ||||||||||||||||||||
2020 | 2019 | % Change | ||||||||||||||||||
Net sales | ||||||||||||||||||||
GAAP (1) | $ | 698,328 | $ | 841,078 | (17 | )% | ||||||||||||||
Adverse impact from changes in foreign currency exchange rates (2) | — | (2,125 | ) | — | % | |||||||||||||||
Non-GAAP constant currency basis | $ | 698,328 | $ | 838,953 | (17 | )% | ||||||||||||||
Gross profit | 2020 | 2019 | BPS Change (3) | |||||||||||||||||
GAAP (1) | $ | 423,608 | $ | 498,633 | 140 | |||||||||||||||
Adverse impact from changes in foreign currency exchange rates (2) | — | (1,408 | ) | — | ||||||||||||||||
Non-GAAP constant currency basis | $ | 423,608 | $ | 497,225 | 140 | |||||||||||||||
Operating income (loss) | 2020 | 2019 | BPS Change (3) | |||||||||||||||||
GAAP (1) | $ | 14,143 | $ | (39,484 | ) | 670 | ||||||||||||||
Excluded items (4) | (8,083 | ) | — | (120 | ) | |||||||||||||||
Adjusted non-GAAP | $ | 22,226 | $ | (39,484 | ) | 790 | ||||||||||||||
Benefit from changes in foreign currency exchange rates (2) | — | 926 | (10 | ) | ||||||||||||||||
Adjusted non-GAAP constant currency basis | $ | 22,226 | $ | (38,558 | ) | 780 | ||||||||||||||
Net income (loss) per diluted share attributable to |
2020 | 2019 | $ Change | |||||||||||||||||
GAAP (1) | $ | 0.09 | $ | (0.48 | ) | $ | 0.57 | |||||||||||||
Excluded items, net of tax (4) | (0.15 | ) | — | (0.15 | ) | |||||||||||||||
Adjusted non-GAAP | $ | 0.23 | $ | (0.48 | ) | $ | 0.71 | |||||||||||||
Benefit from changes in foreign currency exchange rates (2) | — | 0.02 | (0.02 | ) | ||||||||||||||||
Adjusted non-GAAP constant currency basis | $ | 0.23 | $ | (0.46 | ) | $ | 0.69 |
(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 this year consist of pre-tax store asset impairment charges of |
Condensed Consolidated Balance Sheets | |||||||||||
(in thousands) | |||||||||||
(Unaudited) | |||||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and equivalents | $ | 766,721 | $ | 671,267 | $ | 499,757 | |||||
Receivables | 88,323 | 80,251 | 98,691 | ||||||||
Inventories | 453,239 | 434,326 | 487,109 | ||||||||
Other current assets | 75,160 | 78,905 | 86,586 | ||||||||
Total current assets | 1,383,443 | 1,264,749 | 1,172,143 | ||||||||
Property and equipment, net | 635,703 | 665,290 | 649,360 | ||||||||
Operating lease right-of-use assets | 1,073,464 | 1,230,954 | 1,216,998 | ||||||||
Other assets | 216,204 | 388,672 | 368,503 | ||||||||
Total assets | $ | 3,308,814 | $ | 3,549,665 | $ | 3,407,004 | |||||
Liabilities and stockholders’ equity | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | 284,221 | $ | 219,919 | $ | 226,234 | |||||
Accrued expenses | 351,849 | 302,214 | 279,050 | ||||||||
Short-term portion of operating lease liabilities | 278,495 | 282,829 | 273,989 | ||||||||
Income taxes payable | 6,425 | 10,392 | 10,903 | ||||||||
Total current liabilities | 920,990 | 815,354 | 790,176 | ||||||||
Long-term liabilities: | |||||||||||
Long-term portion of operating lease liabilities | $ | 1,122,853 | $ | 1,252,634 | $ | 1,229,609 | |||||
Long-term borrowings, net | 343,250 | 231,963 | 251,033 | ||||||||
Other liabilities | 108,111 | 178,536 | 132,891 | ||||||||
Total long-term liabilities | 1,574,214 | 1,663,133 | 1,613,533 | ||||||||
Total |
805,681 | 1,058,810 | 991,977 | ||||||||
Noncontrolling interests | 7,929 | 12,368 | 11,318 | ||||||||
Total stockholders’ equity | 813,610 | 1,071,178 | 1,003,295 | ||||||||
Total liabilities and stockholders’ equity | $ | 3,308,814 | $ | 3,549,665 | $ | 3,407,004 | |||||
Condensed Consolidated Statements of Cash Flows | |||||||
(in thousands, except per share data) | |||||||
(Unaudited) | |||||||
Twenty-six Weeks Ended | |||||||
Operating activities | |||||||
Net cash provided by (used for) operating activities | $ | 96,233 | $ | (36,055 | ) | ||
Investing activities | |||||||
Purchases of property and equipment | $ | (75,621 | ) | $ | (94,224 | ) | |
Net cash used for investing activities | $ | (75,621 | ) | $ | (94,224 | ) | |
Financing activities | |||||||
Proceeds from issuance of senior secured notes | $ | 350,000 | $ | — | |||
Proceeds from borrowings under the asset-based senior secured credit facility | 210,000 | — | |||||
Repayment of term loan facility borrowings | (233,250 | ) | — | ||||
Repayment of borrowings under the asset-based senior secured credit facility | (210,000 | ) | — | ||||
Payment of debt issuance costs and fees | (6,558 | ) | — | ||||
Purchases of common stock | (15,172 | ) | (57,812 | ) | |||
Dividends paid | (12,556 | ) | (26,385 | ) | |||
Other financing activities | (11,135 | ) | (7,727 | ) | |||
Net cash provided by (used for) financing activities | $ | 71,329 | $ | (91,924 | ) | ||
Effect of foreign currency exchange rates on cash | $ | 1,785 | $ | (2,455 | ) | ||
Net increase (decrease) in cash and equivalents, and restricted cash and equivalents | $ | 93,726 | $ | (224,658 | ) | ||
Cash and equivalents, and restricted cash and equivalents, beginning of period | $ | 692,264 | $ | 745,829 | |||
Cash and equivalents, and restricted cash and equivalents, end of period | $ | 785,990 | $ | 521,171 | |||
Store Count
Hollister (1) | Total | ||||||||||||||||
International | International | International | |||||||||||||||
390 | 153 | 253 | 53 | 643 | 206 | ||||||||||||
New | 1 | 2 | 1 | 3 | 2 | 5 | |||||||||||
Permanently closed | (5) | — | (1) | — | (6) | — | |||||||||||
386 | 155 | 253 | 56 | 639 | 211 | ||||||||||||
New | — | — | — | — | — | — | |||||||||||
Permanently closed | — | — | — | (1) | — | (1) | |||||||||||
386 | 155 | 253 | 55 | 639 | 210 | ||||||||||||
Number of stores currently open (3) | 331 | 155 | 217 | 55 | 548 | 210 | |||||||||||
Percent of stores currently open (3) | 86% | 100% | 86% | 100% | 86% | 100% |
(1) | Locations with |
(2) | |
(3) | In response to COVID-19, the company temporarily closed certain of its Company-operated stores. These amounts relate to the number of stores open as of |
Source: Abercrombie & Fitch Management Co.