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Abercrombie & Fitch Q2 net sales decline 8 percent

By Prachi Singh

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Abercrombie & Fitch’s second quarter net sales decreased 8 percent to 817.8 million dollars from the second quarter last year, which included a comparable sales decline of 4 percent and an adverse impact from changes in foreign currency exchange rates of approximately 5 percent.

“In our second quarter, we delivered a meaningful sequential improvement in comparable sales, stabilized gross margins and achieved significant expense reductions. Our results exceeded what we signaled in our first quarter earnings call and give us confidence that we are on the right track, although we recognize that we still have much to achieve. To accelerate our efforts, we have reinvigorated Abercrombie & Fitch's brand design and merchandising teams, recruiting a number of talented executives with expertise relevant to our needs,” said Arthur Martinez, Executive Chairman of Abercrombie & Fitch.

Reports comparable sales improvement in Q2

Sequential improvements in comparable sales trends were driven largely by Hollister and abercrombie kids and internationally. The company achieved positive comparable sales in Asia and Canada and broad-based sequential improvement in Europe, including in the UK, Germany and France.

However financial results reflected a GAAP net loss of 0.8 million dollars and net loss per diluted share of 0.01dollar compared to GAAP net income of 12.9 million dollars and net income per diluted share of 0.17 dollar for the same period ended August 2, 2014.

Excluding certain items, the company reported an adjusted non-GAAP net income of 8.6 million dollars and net income per diluted share of 0.12 dollar for the second quarter, compared to adjusted non-GAAP net income of 14.1 million dollars and net income per diluted share of 0.19 dollar for the second quarter last year. The year-over-year reduction in adjusted non-GAAP net income per diluted share included an adverse impact from changes in foreign currency exchange rates of approximately 0.18 dollar.

Witnesses decline in net sales across brands

Net sales for the second quarter decreased 9 percent to 380.6 million dollars for Abercrombie and 6 percent to 437.1 million dollars for Hollister. Comparable sales for the second quarter decreased 7 percent in Abercrombie and 1percent in Hollister.

Net sales decreased 6 percent to 514.5 million dollars in the US and 12 percent to 303.2 million dollars internationally. Comparable sales for the second quarter decreased 4percent in the US and 4 percent internationally. Net sales from direct-to-consumer and omni-channel grew to approximately 21percent of the total company net sales in the second quarter, compared to approximately 19 percent of total company net sales last year.

The gross profit rate for the second quarter was 62.3 percent, 20 basis points higher than last year. Excluding certain items, the adjusted gross profit rate for the second quarter was 62.0 percent, reflecting a 110 basis point improvement over last year on a constant currency basis, primarily driven by lower average unit cost. Adjusted gross profit for the quarter excluded a benefit of 2.6 million dollars related to higher than expected recoveries on the inventory write-down associated with the company's first quarter decision to accelerate the disposition of certain aged inventory.

During the quarter, the company opened two international Hollister chain stores, one international Abercrombie & Fitch chain store and one US Abercrombie & Fitch chain store.

Board declares dividend, retail expansion on cards

On August 20, 2015, the Board of Directors declared a quarterly cash dividend of 0.20 dollar per share on the Class A Common Stock of Abercrombie & Fitch Co., payable on September 9, 2015 to stockholders of record at the close of business on September 1, 2015.

For the second-half of its fiscal year 2015, the company expects further comparable sales trend improvement, skewed towards the fourth quarter. Gross margin rate to be approximately flat compared to last year, but up on a constant currency basis. Operating expense to be approximately flat compared to last year.

The company plans to open 15 full-price stores in fiscal 2015 in the key growth markets of China, Japan and the Middle East, six full price stores in North America and ten new outlet stores in the US. In addition, the company anticipates closing approximately 60 stores in the US during the fiscal year through natural lease expirations.

Abercrombie & Fitch