Abercrombie & Fitch Q4 Adj. Profit Beats View; To Buy Back $150 Mln Of Shares

(RTTNews) - Teen clothing retailer Abercrombie & Fitch Co. (ANF) on Wednesday reported a 58 percent decline in profit for the fourth quarter from last year, reflecting lower sales and margins as well as the impact of restructuring charges.

However, adjusted earnings per share for the quarter beat analysts' expectations, while revenues missed their estimates.

Looking ahead, the company forecast fiscal 2014 earnings in line with Street estimates and said its board approved a $150 million accelerated share repurchase plan to be executed during the first quarter. Shares of the company are gaining more than 5 percent in pre-market trades.

Mike Jeffries, CEO of Abercrombie & Fitch, said, "Sales from our direct-to-consumer business were particularly strong, representing nearly 25% of sales for the quarter... we saw sequential improvement in our comparable store sales trend, and continued to see strong results in China and Japan."

The New Albany, Ohio-based company's net income for the fourth quarter was $66.11 million or $0.85 per share down from $157.23 million or $1.95 per share in the year-ago period.

Excluding restructuring charges related to Gilly Hicks, other asset impairment charges and charges related to profit improvement initiatives, adjusted net income for the quarter was $104.26 million or $1.34 per share.

On average, 35 analysts polled by Thomson Reuters expected the company to report earnings of $1.03 per share for the quarter. Analysts' estimates typically exclude one-time items.

Net sales for the quarter declined 12 percent to $1.30 billion from $1.47 billion in the prior year. Analysts had a consensus revenue estimate of $1.36 billion.

However, gross margin for the quarter declined 440 basis points to 59 percent, reflecting an increase in promotional activity, including shipping promotions in the direct-to-consumer business.

Including direct-to-consumer, total U.S. sales decreased 13 percent to $852 million and total international sales declined 9 percent to $447 million. Total company direct-to-consumer sales, including shipping and handling, increased 18 percent to $315 million.

Total comparable sales, including direct-to-consumer sales, decreased 8 percent, with an 8 percent drop in comparable U.S. sales and a 9 percent decrease in comparable international sales. Total direct-to-consumer comparable sales increased 24 percent for the quarter.

By brand, including direct-to-consumer, comparable sales decreased 6 percent for Abercrombie & Fitch, declined 8 percent for abercrombie kids and dropped 10 percent for Hollister Co.

For fiscal 2013, Abercrombie & Fitch's net income was $54.63 million or $0.69 per share, down from $237.01 million or $2.85 per share in the prior year. Adjusted net income for the year was $150.62 million or $1.91 per share.

Net sales for the year declined 9 percent to $4.12 billion from $4.51 billion last year.

Street expected the company to earn $1.62 per share for the year on revenues of $4.17 billion.

Looking ahead to fiscal 2014, Abercrombie & Fitch forecast earnings per share of $2.15 to $2.35, based on an assumption of a high-single digit decline in comparable store sales and an approximate 20 percent increase in comparable direct-to-consumer sales. Analysts expect the company to earn $2.32 per share for the year.

Jeffries said, "After three years of positive growth in our combined U.S. chain stores plus direct-to-consumer comparable sales metric, that metric turned negative in 2013 against the backdrop of a challenging retail environment, particularly in the teen space. It is important that we return to positive growth, particularly in our core U.S. business, and the steps we are taking as we execute against our long-range strategic plan should put us in a position to achieve this goal."

In early November 2013, Abercrombie & Fitch's board of directors approved the closure of the company's 24 stand-alone Gilly Hicks stores. The company continues to expect to substantially complete the closures by the end of the first quarter of fiscal 2014.

The company continues to estimate that it will incur pre-tax charges of about $90 million related to the restructuring of the Gilly Hicks brand, of which $81.5 million has been incurred as of February 1, 2014. The company expects the remaining charges to be substantially recognized in the first quarter of fiscal 2014.

Abercrombie & Fitch's board has approved a $150 million accelerated share repurchase to be executed during the first quarter, pursuant to the existing open share repurchase authorization of 16.3 million shares.

In late January, Abercrombie said it separated the roles of Chairman of the Board and CEO, and brought on three new directors. Michael Jeffries, who has served as chairman of the Board since 1996, was stripped of his role as chairman but will continue to serve as a director and CEO.

Martinez, former CEO and chairman of Sears, Roebuck and Co. and the former chairman of the Federal Reserve Bank of Chicago, will lead the board as non-executive chairman.

ANF closed Tuesday's trading at $35.99. In Wednesday's pre-market, the stock is adding $2.00 or 5.56 percent to $37.99.