Abercrombie & Fitch Co. (
), a leading international specialty retailer, reported disappointing second quarter results with a net loss of $26.7 million or -30 cents per share compared to a net income of $77.8 million or 87 cents per share in the year-earlier quarter.
The year-over-year decline in results was primarily due to the continued economic downturn plaguing the industry that has resulted in reduced consumer discretionary income and a cut in non-essential spending.
Overall net sales of the company during the quarter decreased 23% to $648.5 million from $845.8 million in the year-ago quarter. Total company direct-to-consumer net sales decreased 13% year-over-year to $48.7 million, while overall comparable store sales decreased 30%.
Gross profit rate during the quarter decreased 360 basis points year-over-year due to a higher markdown rate. Abercrombie was able to reduce its stores and distribution expense (as a percentage of sales) through savings in store payroll, and reduction in direct-to-consumer and other variable expenses. The marketing, general and administrative expenses also decreased during the quarter from $109.0 million to $88.7 million due to savings related to employee compensation and benefits, and cut in travel and outside services.
However, the rate of sales decline of the company was much higher than the reduction in expenses. Furthermore, Abercrombie witnessed an increase in rents, depreciation and lease termination costs related to the exit of RUEHL branded stores.
During the quarter, the management approved the closure of 29 RUEHL branded stores and associated direct-to-consumer operations. Abercrombie incurred $23.6 million of pre-tax charges during the quarter to exit RUEHL, along with an impairment charge of $0.8 million. The company expects to complete the closure by the end of fiscal 2009.
At quarter end, Abercrombie had $366.5 million of cash and cash equivalents along with outstanding debt and letters of credit of $79.6 million. The company repaid $100 million of US dollar-denominated outstanding debt, and obtained approximately $37 million in foreign currency denominated borrowings to fund its international lease and capital expenditures.
During the quarter, the company opened its first Epic Hollister flagship store in New York, two Hollister mall-based stores in the UK, and one Abercrombie store in the US. Abercrombie mulls opening nine mall-based stores in fiscal 2009 in the US, which includes two Abercrombie stores, four Hollister stores, one Gilly Hicks store, and two outlet stores. Internationally, the company intends to open 10 mall-based stores in the current fiscal year, including one Abercrombie store in Canada, one Hollister store each in Germany and Italy, and seven Hollister stores in the UK.
Abercrombie has reduced its earlier capital expenditures projection for fiscal 2009 from $200 million to $185 million, due to lower-than-expected construction costs and the reduction and deferment of non-essential projects related to existing stores.
