ON NOVEMBER 7, Abercrombie & Fitch Co. released its business update for the third quarter (Q3), of this 2014 fiscal year (FY2014), which ended on November 1.
During the quarter, the Company generated a total of US$911.4 million in net sales (revenue) at a -12% in comparison to its performance during the same period last year (Q3, FY2013) which figured US$1.003 billion (which itself experienced -12% decrease from the US$1.170 billion of Q3 FY2012 which factored in a peak in revenue for the third quarter since the Great Recession). The third quarter of fiscal 2014 presents yet another decline, though this time even greater, in individual quarterly health in standing against Q2's -6% and Q1's -2%.
Breaking figures down, the Company overall experienced a 10% drop in comparable store sales (including direct-to-consumer ecommerce) in its global business - down 7% in the United States and down 15% internationally. Direct-to-consumer on its own performed up 8% in comparable sales. And though there are no by-brand statistics yet (until the full earnings release on Wednesday, December 3), comparable sales at the Hollister brand performed lower yet again than the Abercrombie & Fitch brand itself. Company inventory costs were down 20% in comparison to the same period last year.
"Sales during the quarter were below expectations with comparable sales in September and October being significantly weaker than August. Although the international stores segment was the most difficult, the lower sales trend was broadly based. In addition, the Company now expects modest gross margin rate erosion for the quarter compared to last year, given the highly promotional and challenging environment. The effect of lower sales and gross margins will be partially offset by continued significant expense reductions. The Company's results for the quarter were also adversely impacted by the strengthening of the U.S. dollar." - A&F press release, November 7, 2014
CEO of Abercrombie & Fitch, Michael "Mike" S. Jeffries elaboarted, "We are clearly disappointed with our results for the third quarter. Continued weak store traffic was the primary contributor to the weak sales trend, particularly in Europe, where the environment there showed signs of further slowing. In addition, the decline in sales of heavy logo product weighed on the sales trend as we continued to reduce that element of our assortment in response to changing consumer preferences. [...] In the short term, we are reviewing measures to drive improvement in our results in the critical fourth quarter. Longer term, we continue to believe we are taking the right steps strategically to position the company for future improvements in our performance. This includes the completion of our move to a branded structure, strategic investments in Asia and in our Direct to Consumer business, shifting our assortment in line with consumer preferences, re-engaging with our customer through store re-design and marketing initiatives, continuing to close underperforming U.S. stores, and continuing to reduce expenses. We will provide a more extensive update on our quarterly earnings call."
For the third quarter, the Company gave a range for adjusted non-GAAP net income per diluted share at US$0.40 to $0.42: "The comparable GAAP net income per diluted share measure is not available at this time, pending finalization of the above charges, but will be available when the Company reports its third quarter results on Wednesday, December 3. Non-GAAP financial measures should not be used as alternatives to net income and net income per diluted share and are also not intended to supersede or replace the Company's GAAP financial measures. The Company believes it is useful to investors to provide the non-GAAP financial measures to assess the Company's operating performance."
Following the release, stock for ANF on the New York Stock Exchange subsequently dropped to hitting a dramatic two-year low coming to US$30s by noon and falling below to US$29s by mid-2:00PM (EST). ANF stock had already been considerably declining since late-August (the time results for Q2 had been announced), experiencing a steep downturn taking it lower than the starting point at the beginning of 2014 from which stock had made impressively progressive gains, and did make a very minute climb as day for update announcement came around the corner though only to then make the two-year low after the November 7 Q3 update.
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While Abercrombie & Fitch has been having its own personal, internal issues to work out in maintaining and reinvigorating its business with consumers, it's important to also maintain awareness, in greater perspective, that the industry as a whole has been experiencing declines in mall traffic in general and, in more relation to Company, is furthermore partially influenced by the considerable shifting consumerism of youths affected by specific socioeconomic factors post-Recession. It's an ongoing careful process of adjusting to this particular environment across all channels of the business.
We are now in the final quarter of the fiscal year. Full earnings release for Q3 FY2014 will take place on Wednesday, December 3.