A&F Beats Guidance, then Lowers Outlook
First-quarter per-share earnings at
Abercrombie & Fitch
(ANF) - Get Report
grew 13% on strongsales and improving margins, the apparel chain reported on Tuesday.
In its quarter ended May 4, Abercrombie earned $25.6 million, or 26cents a share. That was up from the year-ago period, when the retailer from New Albany,Ohio, earned $23.3 million, or 23 cents a share.
Total sales at the company jumped 10.8% year over year to $346.7million.
Although the company's sales fell short of analysts' expectations, the company met Wall Street's earnings projections. Analysts were expecting the companyto earn 26 cents a share on $355.55 million in revenue, according to Thomson First Call. The company had previously said it expected toearn 25 cents a share in the quarter.
Despite meeting expectations in the first quarter, Abercrombie warnedanalysts that it might not meet their targets or its prior guidance for thecurrent quarter. The company now expects to earn between 30 cents and 34cents a share in its second quarter. Previously, the company said ithad expected to earn 34 cents in the current quarter; analysts had projectedearnings of 35 cents a share.
"I am pleased with our ability to achieve earnings growth in whatcontinues to be a challenging retail environment," CEO Mike Jeffriessaid in a statement. "However, the state of the economy and the retailenvironment remain very uncertain, and it is very difficult to predict thelevel of business for the balance of the second quarter."
In addition to increasing its sales, Abercrombie lifted its gross profitmargin in the first quarter. Gross margin, which is the difference betweenwhat a company charges consumers for its goods and what it pays vendors forthem, increased to 37% of sales, up 40 basis points from the first quarter ayear ago.
On a conference call with analysts, company officials attributed theimprovement in gross margin in part to higher initial markups on thecompany's merchandise. The company also used fewer pricepromotions than it had in the year-ago period, officials said.
But the markups had a tradeoff, as comparable store sales, whichcompare results of like outlets open more than one year, fell 6% in thequarter. Meanwhile the average transactions per store fell about 17%,company officials said.
Acknowledging that the lack of promotions hurt business in the firstquarter, officials said they planned to increase the company's discounts andpromotions in the current quarter. However, they said the discounting wouldnot match last year's levels.
In contrast to its gross margin improvement, the company lost ground onits operating expenses. General, administrative and store operating expensesincreased 60 basis points to 25.4% of sales. Company officials blamed theincrease primarily on store expenses outpacing same-store sales. Inresponse, the company said it has reduced its payroll hours in itsadult-focused Abercrombie & Fitch stores by 1%.
During regular trading, Abercrombie dropped $1.05, or 3.4%, to $29.85. After hours, the retailer dropped further, trading off an additional 5.5%.