ANF Guides Down

For Thomas's preview heading into the Abercrombie & Fitch conference call, please click here.

Abercrombie & Fitch (ANF - commentary - Cramer's Take) reported third-quarter EPS of 72 cents vs. a Street consensus of 75 cents and $1.29 last year. Sales were down 8% vs. an expected 4% decline.

Direct-to-consumer sales decreased 6%. Abercrombie & Fitch net sales and comparables were both down 6%. The abercrombie concept's net sales fell 14%, and comps declined 20%. Hollister net sales declined 7%, while comps were down 18%. Ruehl net sales declined 7%, and its comp was down 25%.

Transactions declined 20%, and the average value per transaction increased 5% (probably the price increases).

The gross profit margin was 66.0%, down 0.2%. Gross profit dollars declined 8%. Total store and distribution expense rose 9% and was up as a percentage of sales from 36.5% to 43.1%. Marketing, general and administrative increased 1.0%, to 11.7% of total sales. The operating income declined 47% and is now at 11.2% of sales, down from 19.2% last year. A lower tax rate from special items caused a 46% decline in net, and shares fell 2.5%.

Inventory per square foot was up 13%, which somewhat troubling given management's determination not to promote and supposedly hurt the stores' images. (If this company had been in business during The Great Depression, would it have hurt the stores' images to have a sale then?)

Guidance was for EPS of $1.00 to $1.05 for the current quarter vs. a $1.72 consensus and $3.27 to $3.32 for the year vs. the $4.05 consensus. These numbers assume that the 26% comp decrease of early November carries through the holiday shopping season. Ending inventory is expected to be up mid single digits vs. last year.

I was in error on Ruehl: Apparently, the company is not thinking of closing down the concept, though there are new openings planned in 2009. Gilly also gets no new stores and still must prove itself.

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At the time of publication, Thomas had no positions in the stocks mentioned.