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Abercrombie & Fitch 2Q results miss expectations

August 22. 2013 1:37PM
Associated Press

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(AP) Abercrombie & Fitch is the latest retailer to catch a case of the teenage blues.

A&F's shares plummeted Thursday after the store chain reported a 33 percent drop in second-quarter profit and warned that business would get even worse in the current quarter, which includes the final stretch of the back-to-school selling period.

The teen retailer's results missed analysts' estimates. Its third-quarter earnings forecast came in well below Wall Street expectations.

The stock tumbled 18 percent.

Teen retailers have struggled during their most recent quarter. Their customer base can be fickle, with constantly changing tastes in fashion and promotions causing shopper loyalty to wane.

In addition, many teens' clothing purchases are tied closely to how much their parents are willing to spend and lately that's not much. Shoppers have been increasingly cautious as they continue to deal with uncertain economic conditions and absorb a 2 percentage-point increase in the Social Security payroll tax. A shift in spending toward cars and home improvement is also leaving little left to spend on clothing and other purchases.

Moreover, teens are also facing scarce opportunities for summer jobs or part-time work during the school year. That leaves them short of the extra pocket money to finance a new pair of jeans or leggings.

"The second quarter proved to be more difficult than expected due to weaker traffic particularly in July, and continued softness in the female business," Mike Jeffries, chairman and CEO of A&F, said during a conference call with investors. "The reasons for the weak traffic are not entirely clear. Our best theory is that while consumers in general are feeling better about the overall economic environment, it is less the case for the young consumer."

Executives also note that that youth spending appears to be going toward other categories like tablets and consumer electronics. As a result, the company has been paring back winter holiday orders over the last few weeks, says Jonathan Ramsden, A&F's chief financial officer.

A day earlier, competitor American Eagle Outfitters Inc. posted weak second-quarter results on a similar drop in traffic and difficulty in its women's business. The retailer also gave a third-quarter profit forecast short of analysts' expectations.

Another teen standby, Aeropostale Inc., is scheduled to come out with second-quarter results after the markets closes Thursday. That company has already warned investors to expect a deeper loss because it had to mark down more clothing because of weak demand.

On Thursday, Abercrombie's shares dropped $8.48 to $38.32, while American Eagle's fell close to 2 percent, or 28 cents to $15.04. Aeropostale's shares fell more than 3 percent, or 40 cents to $11.03.

For the period ended Aug. 3, Abercrombie & Fitch Co. earned $11.4 million, or 14 cents per share. That's down from $17.1 million, or 20 cents per share, a year earlier.

Removing 2 cents per share in charges tied to its profit-improvement plans, earnings were 16 cents per share.

Analysts surveyed by FactSet expected much higher earnings of 28 cents per share.

Shares of Abercrombie & Fitch slid $9.30, or 19.9 percent, to $37.50 before the market open.

Revenue dipped 1 percent to $945.7 million from $951.4 million. U.S. sales fell 8 percent including the direct-to-consumer business. Wall Street estimated revenue of $996.7 million.

While the U.S. performance was soft, results were better elsewhere. International sales including direct-to-consumer climbed 15 percent, and direct-to-consumer sales for the whole company including shipping and handling increased 21 percent.

Revenue at stores open at least a year, a key indicator of a retailer's health, declined 10 percent on softness worldwide. Abercrombie & Fitch said that the figure includes direct-to-consumer sales. This metric excludes results from stores recently opened or closed.

In the U.S., revenue at stores open at least a year fell 11 percent. The figure dropped 7 percent overseas. The company said that the weakest results came in July.

Among its brands, the weakest results came from Hollister Co., which reported a 13 percent sales decline. The chain's namesake brand posted a 6 percent drop, while comparable sales for Abercrombie kids fell 3 percent. The performances include Internet and catalog sales.

Going forward, Abercrombie & Fitch anticipates third-quarter earnings of 40 cents to 45 cents per share. Analysts had predicted $1.07 per share.

The New Albany, Ohio, company said it is not giving predictions past the third quarter because it is unclear on projections due to recent traffic trends.

Abercrombie & Fitch had 1,057 stores at quarter's end.

Associated Press

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