Abercrombie & Fitch Q2 results fail to meet expectations

Mike Jeffries, Chief Executive Officer and Chairman of the Board of Abercrombie & Fitch Co., said: "The second quarter results we are reporting today are disappointing and below our expectations coming into the quarter. In particular, we saw a further deceleration in the trend in our international stores, while our U.S. chain stores also comped negatively for the quarter for the first time since 2009. Our direct to consumer business remained a bright spot, posting its tenth successive quarter with growth of 25% or better.

Our entire organization is completely focused on improving upon the trends we have seen. There are factors beyond our control but, as a team, we believe there are opportunities to do better. We continue to be confident in the global appeal of our iconic brands. This was once again affirmed by the tremendous reception our Hong Kong flagship received at its opening this past Saturday. We remain excited and optimistic about the opportunities ahead of us, and we will be disciplined and judicious in our use of our shareholders' capital to pursue those opportunities."

Second Quarter Summary

Net sales for the thirteen weeks ended July 28, 2012 increased 4% to $951.4 million from $916.8 million for the thirteen weeks ended July 30, 2011. Total U.S. sales, including direct-to-consumer sales, decreased 5% to $648.0 million. Total international sales, including direct-to-consumer sales, increased 31% to $303.4 million. Total Company direct-to-consumer sales, including shipping and handling, increased 25% to $127.7 million.

Total comparable store sales for the quarter decreased 10% relative to last year. By brand, comparable store sales decreased 11% for Abercrombie & Fitch, 10% for abercrombie kids, and 10% for Hollister Co. Total sales by brand were $362.5 million for Abercrombie & Fitch, $76.3 million for abercrombie kids and $485.6 million for Hollister Co.

The gross profit rate for the second quarter was 62.5%, 110 basis points lower than last year's second quarter gross profit rate. The decrease in the gross profit rate was driven by an increase in average unit cost and the adverse effect of exchange rates, partially offset by an international mix benefit. 

Stores and distribution expense, as a percentage of net sales, increased to 48.1% from 46.4% for the second quarter of last year. The increase in the stores and distribution rate was primarily the result of deleveraging on negative comparable store sales.   

Marketing, general and administrative expense for the second quarter was $111.3 million, compared to $110.0 million during the same period last year. The increase in marketing, general and administrative expense was due to increases in marketing expense, IT expense, travel and other expenses, largely offset by a decrease in incentive compensation expense.