Abercrombie & Fitch slips into losses in Q3 FY'14

Excluding charges related to restructuring plans for Gilly Hicks, other store asset impairment charges, and charges related to its profit improvement initiative, the Company reported adjusted non-GAAP net income of $40.5 million and net income per diluted share of $0.52. Results for the quarter included a tax benefit of $0.06 per share related to certain discrete tax matters.

Third Quarter Summary

Net sales for the thirteen weeks ended November 2, 2013 decreased 12% to $1.033 billion from $1.170 billion for the thirteen weeks ended October 27, 2012. Including direct-to-consumer, total U.S. sales decreased 18% to $674.9 million. Including direct-to-consumer, total international sales increased 2% to $358.4 million. Total company direct-to-consumer sales, including shipping and handling, increased 10% to $174.6 million.

Total comparable sales for the quarter, including direct-to-consumer sales, decreased 14% with comparable U.S. sales decreasing 14% and comparable international sales decreasing 15%. Total direct-to-consumer comparable sales increased 11% for the quarter. Within the quarter, comparable sales were weakest in August and September.

Due to the 53rd week in Fiscal 2012, third quarter comparable sales are compared to the thirteen week period ended November 3, 2012. The thirteen week period ended November 3, 2012 had approximately $23 million less in sales versus the reported thirteen week period ended October 27, 2012.

By brand, including direct-to-consumer, comparable sales decreased 13% for Abercrombie & Fitch, decreased 4% for abercrombie kids, and decreased 16% for Hollister Co. Total sales by brand were $387.8 million for Abercrombie & Fitch, $89.9 million for abercrombie kids and $534.0 million for Hollister Co.

The gross profit rate for the third quarter was 63.0%, 130 basis points lower than last year's third quarter gross profit rate. Gross profit included $5.3 million of inventory write-downs associated with Gilly Hicks, primarily related to the store closures.

Stores and distribution expense for the third quarter was $564.9 million, up from $496.9 million last year.  Stores and distribution expense for the third quarter of Fiscal 2013 included $40.1 million of charges related to the restructuring of the Gilly Hicks brand and $43.6 million of other store asset impairment charges.

Excluding these charges the stores and distribution expense rate was 46.5% of net sales compared to 42.5% of net sales last year. Expense savings in store payroll, store management and support and other stores and distribution expense were more than offset by the deleveraging effect of negative comparable sales and higher direct-to-consumer expense.

Marketing, general and administrative expense for the third quarter was $131.3 million, compared to $123.4 million last year. Marketing, general and administrative expense for the third quarter of Fiscal 2013 included $7.0 million of charges related to the profit improvement initiative and $4.6 million of charges related to the restructuring of the Gilly Hicks brand. Excluding these charges, marketing, general and administrative expense was $119.8 million, a decrease of 3% from last year.

Other operating income for the third quarter was $9.9 million compared to $1.2 million last year. The increase in other operating income was primarily driven by insurance recoveries of approximately $6.0 million.

Abercrombie & Fitch