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Abercrombie & Fitch reports decline in Q3 sales and earnings

By Prachi Singh

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Business

GAAP net income per diluted share at Abercrombie & Fitch was 0.12 dollar for the third quarter ended October 29, 2016 compared to 0.60 dollar for the third quarter last year. Adjusted non-GAAP net income was 0.02 dollar compared to 0.48 dollar last year. The company said adverse impact from year-over-year changes in foreign currency exchange rates for the quarter was approximately 0.09 dollar per diluted share. Net sales for the quarter of 821.7 million dollars were down 6 percent over last year, with comparable sales down 6 percent.

Commenting on the development, Arthur Martinez, Executive Chairman, said in a statement, "As expected, our third quarter was challenging. While Hollister improved sequentially, it was more than offset by disappointing performance in A&F. For A&F, flagship and tourist locations continued to be a major headwind. In addition, chain store traffic patterns remained negative. Weakness in A&F was compounded by underperformance of seasonal categories, which ultimately led to pressure on gross margin."

Third quarter net income dwindles

Net income attributable to Abercrombie & Fitch was 7.9 million dollars for the third quarter compared to 41.9 million dollars last year. Adjusted non-GAAP net income was 1.4 million dollars compared to 32.9 million dollars last year. On November 16, 2016, the board of directors declared a quarterly cash dividend of 0.20 dollar per share.

The company announced closing plans for its A&F flagship store in Seoul in January 2017 and the company also exercised a lease kick-out option for its A&F flagship store in Hong Kong. As a result of this decision, the company expects to incur a lease termination charge of approximately 16 million dollars during the fourth quarter.

Forecasts challenging times ahead

For the fourth quarter of fiscal 2016, the company expects comparable sales to be challenging, but modestly improved from the third quarter, continued adverse impact from foreign currency on sales and operating income is expected. A gross margin rate is expected to be down slightly to last year's adjusted non-GAAP rate of 60.7 percent.

On a full year basis, the company expects the effective tax rate to be in the mid to upper 20s, but to remain sensitive at lower levels of pre-tax earnings. In addition to the 13 stores opened year to date, including five outlet stores, the company expects to open seven new stores in the fourth quarter, including five in China and two in the US. The company also anticipates closing approximately 35 stores in the US in the fourth quarter through lease expirations, in addition to the 15 stores closed year to date.

Summary
Net sales drop 821.7 mn dollars
  • In Q4, the company expects comparable sales to be challenging, but modestly improved from Q3
  • On a full year basis, the company expects the effective tax rate to remain sensitive at lower levels of pre-tax earnings.

Picture:Abercrombie & Fitch

Abercrombie & Fitch