Bloomberg News

Abercrombie Falls After Sales Trail Analysts’ Estimate

May 16, 2012

Abercrombie & Fitch Co. (ANF:US), the operator of more than 800 teen-clothing stores, fell after posting first-quarter revenue that trailed analysts’ estimates and saying weakness in Europe will hurt same-store sales this year.

Abercrombie retreated 13 percent to $39.50 at the close in New York, the lowest closing price since Oct. 6, 2010. The New Albany, Ohio-based company, the second-worst performer in the Standard & Poor’s 500 Index today, had lost 7 percent this year through yesterday.

Abercrombie, which got 20 percent of sales from Europe in the year ended Jan. 28, is among specialty retailers taking a hit as the region’s economies are roiled by the sovereign-debt crisis. Watch and jewelry seller Fossil Inc. (FOSL:US)plunged (FOSL:US) 38 percent on May 8, the biggest drop since 1995, after cutting its full-year earnings forecast and citing softness in Europe.

“The weak comp store sales, despite using promotions to drive sales, underscores the faltering brand equity” for Abercrombie, Richard Jaffe, a New York-based analyst at Stifel Nicolaus & Co. with a hold rating on the shares, wrote in a note today. “Our outlook for macroeconomic improvement is hazy and we anticipate international stores will continue to be pressured in 2012.”

Revenue in the quarter ended April 28 rose 10 percent to $921.2 million, trailing the $953.7 million average of 27 analysts’ estimates (ANF:US) compiled by Bloomberg. Same-store sales slid 5 percent, the first drop (ANF:US) in more than two years. Abercrombie said such sales will fall at a mid-single digit percentage rate this fiscal after earlier forecasting they’d be little changed.

First-Quarter Profit

“While we are disappointed that European sales trends remain challenging in a very difficult macroeconomic environment, we are largely satisfied with our overall performance for the quarter in that context,” Abercrombie Chairman and Chief Executive Officer Mike Jeffries said in the statement.

In addition to the economic challenges in Europe, international sales declined from “cannibalization” and an unsustainable new store opening rate, Jeffries said on a conference call today.

It’s a contrast from the same period a year ago, when strength in Europe drove a 10 percent increase in comparable store sales and Chief Financial officer Jonathan Ramsden discussed targeting a store count for Hollister Europe “in the high 100s.”

At the end of the first quarter, Abercrombie operated 81 stores in Europe, 7 in Asia, 19 in Canada and 942 in the U.S., including its namesake, Hollister, Abercrombie Kids and Gilly Hicks chains, according to an investor presentation on its website. That’s up from 36 stores in Europe at the end of the first quarter last year, a separate presentation shows.

‘Oversized Reaction’

Overall international sales rose, signaling strength, Eric Beder, an analyst with Brean Murray Carret & Co. wrote in a note today, reiterating his buy rating on the stock.

“Current valuations reflect an oversized reaction to Europe and inventory levels, which should improve as we move forward and comparisons ease,” Beder said.

Abercrombie reported adjusted first-quarter profit of 3 cents a share, beating the average estimate of 1 cent, and left its profit forecast for the year unchanged at as much as $3.75 a share.

Expenses are “becoming a problem in our view due to an aggressive store opening posture on international flagships and Hollister Europe openings,” Brian Sozzi, an independent analyst in New York, wrote in a note today.

Store pre-opening costs rose to $14.4 million in the first quarter from $8.95 million in the year-earlier period, while marketing, general and administrative expenses rose to $116.9 million from $107.7 million, according to the presentation.

To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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Companies Mentioned

  • ANF
    (Abercrombie & Fitch Co)
    • $28.06 USD
    • -0.17
    • -0.61%
  • FOSL
    (Fossil Group Inc)
    • $109.78 USD
    • -0.20
    • -0.18%
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