Abercrombie & Fitch to shed 29 RUEHL branded stores

18 Jun '09

4 min read

Abercrombie & Fitch announced that its Board of Directors approved the closure of its 29 RUEHL branded stores and related direct-to-consumer operations. The Company anticipates the closure will be substantially complete by the end of the current fiscal year.

While it was encouraged by the initial performance of RUEHL, the Company has determined that, given the severe economic downturn and its impact on the retail and consumer sectors, the timing is not right to continue to pursue the further development of RUEHL. RUEHL generated a pre-tax operating loss of approximately $58 million for the fiscal year ended January 31, 2009, including a non-cash impairment charge of approximately $22 million. The pre-tax operating loss included store operating results and home office and other costs directly attributable to RUEHL operations.

Mike Jeffries, Chief Executive Officer and Chairman of the Board of Abercrombie & Fitch Co., said: "It has been a difficult decision to close RUEHL, a brand we continue to believe could have been successful in different circumstances. However, given the current economic environment, we believe it is in the best interests of the Company to focus its efforts and resources on the growth opportunities afforded by our other brands, particularly internationally.

While I am disappointed with the ultimate outcome, I am grateful for the effort and commitment the RUEHL team has shown in developing and positioning that brand in the marketplace. In particular, the recent strides made in differentiating and elevating the RUEHL assortment make this an especially difficult decision. However, all of our brands will benefit from our experience and lessons learned with RUEHL."

In connection with the strategic review of the RUEHL operations, the Company incurred approximately $51 million in non-cash, pre-tax impairment charges in its first quarter of Fiscal 2009. In addition, as a result of exiting RUEHL, the Company currently estimates that it will incur additional pre-tax charges of approximately $65 million, including the net present value of lease-related charges, severance, and other charges. This estimate is based on a number of significant assumptions and could change materially.

The additional charges are expected to be substantially recognized during the remaining three quarters of Fiscal 2009 in accordance with applicable accounting rules. The Company estimates the net cash outflow associated with the RUEHL store and direct-to-consumer closings, prior to associated tax benefits, to be approximately $75 million. This estimate is also based on a number of significant assumptions and could change materially. On a full year basis, the marginal tax rate applied to charges associated with exiting RUEHL is estimated to be approximately 39%.

The Company also announced that it has amended its existing credit agreement effective June 16, 2009. The amended credit agreement allows the Company to exclude from its calculation of the minimum coverage and maximum leverage ratios up to $61 million of the estimated $65 million of additional pre-tax charges associated with exiting RUEHL, as described above, in addition to certain other non-cash and non-recurring charges. The RUEHL-related impairment charges will also be excluded from the ratio calculations.

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