* Sees Q1 drop in comp sales, loss
* CEO has set up team to find ways to cut costs
* Shares down 6.4 percent
By Phil Wahba
Feb 22 Abercrombie & Fitch Co on Friday
reported a drop in comparable sales during the holiday quarter
on weakness at its overseas stores and in its Hollister chain,
and the youth retailer warned of a sluggish start to the new
Shares were down 6.4 percent to $45.96 in midday trading.
Business at Abercrombie & Fitch has slumped amid intense
competition for young shoppers' limited budgets from rivals such
as American Eagle Outfitters, Gap Inc, and
Forever21. The company's plan to build out flagship stores in
Europe has yet to pay off.
Sales at stores open at least a year and online fell 1
percent during the quarter that included the Christmas period,
and Abercrombie said it expects comparable sales this current
quarter will again fall and lead to a loss for the period.
"It's been two full years of bad news," said Morningstar
analyst Jaime Katz, noting that investors are getting anxious to
Comparable sales were flat for the namesake chain and fell 2
percent at Hollister last quarter. They were little changed in
the United States and down 3 percent abroad. Online sales were
the only sector where Abercrombie is showing growth.
Abercrombie's profit got a boost from lower cotton costs and
efforts to contain other costs. Chief Executive Mike Jeffries
announced the creation of a special team led by two senior
executives, helped by an outside firm, to find ways to lower
expenses and lift operating margins.
"Our profitability is not where it needs to be," Jeffries
said on a conference call with Wall Street analysts. He also
said that a tough economy would continue to weigh on his
customers this year.
The company has also undertaken its first global market
study to better understand how shoppers view Abercrombie
compared to its rivals and improve its ability to compete.
Overall sales rose 10.5 percent to $1.47 billion for the 14
weeks ended Feb. 2, boosted by an extra week compared to the
year earlier period. The result was below the $1.49 billion Wall
Street was projecting, according to Thomson Reuters I/B/E/S.
A decrease in product costs like cotton sent its gross
profit margin up 3.9 percentage points to 63.4 percent of sales.
Abercrombie announced it was changing how it accounts for
merchandise it will mark down permanently.
Previously, the company lowered the value of its inventory
and took a charge when the selling price was lowered
permanently. Now, it won't reduce the value of inventory on its
books unless it expects to sell the merchandise below cost.
Under the old accounting method for inventory, the company
earned $173.2 million, or $2.15 per share, for the 14-week
period, compared with $19.6 million, or 22 cents per share, a
year earlier for a 13-week period.
Excluding an impairment charge, Abercrombie had a profit of
$2.21 a share, 25 cents better than expected, according to
Thomson Reuters I/B/E/S.
The company raised its quarterly dividend to 20 cents per