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Net revenues take a hit at Abercrombie & Fitch in Q3

14
Nov '08
Abercrombie & Fitch Co. today reported unaudited results which reflected third quarter net income of $63.9 million and net income per diluted share of $0.72 for the thirteen weeks ended November 1, 2008, compared to net income of $117.6 million and net income per diluted share of $1.29 for the thirteen weeks ended November 3, 2007.

Third Quarter Financial Results:
Net sales for the thirteen weeks ended November 1, 2008 decreased 8% to $896.3 million from $973.9 million for the thirteen weeks ended November 3, 2007. Total Company direct-to-consumer net sales decreased 6% to $57.5 million for the thirteen week period ended November 1, 2008, compared to the thirteen week period ended November 3, 2007. Total Company comparable store sales decreased 14% for the thirteen weeks ended November 1, 2008.

The gross profit rate for the quarter was 66.0%, down 20 basis points compared to last year. The decrease in gross profit rate was primarily due to an increase in the markdown rate as a result of lower than expected sales during the quarter.

Stores and distribution expense, as a percentage of sales, increased 660 basis points to 43.1% from 36.5% and marketing, general and administrative expense, as a percentage of sales, increased 100 basis points to 11.7% from 10.7%. The Company reduced its store payroll hours and home office expense in response to declining sales.

However, the increase in the operating expense rate is primarily attributed to the limitation on leveraging fixed expenses due to the comparable store sales decline. This quarter's operating expense also included expense related to minimum wage and manager salary increases and flagship pre-opening rent.

Operating income for the third quarter was $100.1 million compared to $186.6 million last year. Interest income for the third quarter decreased to $0.6 million compared to $4.6 million last year. The decrease was attributed to a lower average rate of return on investments compared to last year.

The effective tax rate for the third quarter was 36.5% compared to 38.5% last year. The effective tax rate for the third quarter of fiscal 2008 reflects the favorable impact from the settlement of tax audits. Net income for the third quarter was $63.9 million compared to $117.6 million last year.
Net income per diluted share for the third quarter decreased 44% to $0.72 compared to $1.29 last year.

2008 Update:
The Company now expects net income per diluted share for the fourth quarter of fiscal 2008 to be in the range of $1.00 to $1.05 and net income per diluted share for fiscal 2008 to be in the range of $3.27 to $3.32. The fourth quarter earnings guidance assumes a negative 26% comparable store sales scenario (in line with the early November trend), approximately $5 million in incremental expense from minimum wage rate and manager salary increases, and approximately $6 million in pre-opening rent expense for futureflagship stores.


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