Abercrombie & Fitch Co. Shows Q3 Loss but Beats Expectations
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Abercrombie & Fitch posted both bottom- and top-line declines in its third quarter but beat expectations on both fronts and upped its outlook.
For the quarter ended Oct. 29, A&F had a net loss of $2.2 million, or 4 cents a share, versus net income of $47.2 million, or 77 cents a share, in the year-ago quarter.
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Net sales in the third quarter dropped 3 percent to $880.1 million from $905.16 million in the year-ago period. Sales were flat on a constant currency basis. Wall Street expected around $830 million in sales.
The Abercrombie division reported a 10 percent gain in sales to $422.3 million, versus $382.85 million in the year-ago period.
Hollister reported a 12 percent decline in sales to $457.75 million from $522.31 million in the year-ago period.
Adjusted net income of $0.01 a share beat the expected $0.15 loss.
“We were pleased to see year-over-year sales trends improve across brands in light of the global macroeconomic environment,” Fran Horowitz, chief executive officer, said in a statement. “While net sales were down 3 percent as compared to last year on a reported basis, net sales were flat on a constant currency basis. Results were driven by Abercrombie brands where we delivered the highest [third-quarter] net sales since 2014 and the tenth consecutive quarter of average unit retail growth.
“We are cautiously optimistic as the holiday season kicks into high gear,” Horowitz added. “While the environment remains dynamic, we are focused on what we can control. We have strategically adjusted our inventory receipts for holiday and early 2023, and unlike last year, we have the inventory on hand to fulfill holiday demand in the peak Black Friday to Christmas period. Additionally, we have reduced controllable spend where appropriate. At the same time, we are leveraging our strong financial position to advance the long-term, strategic investments necessary to achieve our 2025 Always Forward Plan.”
The company also announced that Terry Burman will step down as chairperson of the board at the conclusion of the company’s fiscal year ending Jan. 28, and will at that time be succeeded by board member Nigel Travis.
Inventories for the third quarter were $742 million, or 36 percent more than the year-ago quarter when there was severe supply chain issues. Approximately 92 percent of the inventory is current. “The third quarter lapped the lowest [third quarter] on hand inventory levels since the mid-2000s and the lowest total inventory in over a decade, driven by shipping delays and production shutdowns in Vietnam, where the company had outsized exposure relative to industry average,” A&F reported. “Low on-hand inventories in 2021 led to missed sales opportunity in the back half. This year, inventory deliveries were proactively pulled forward to ensure product is in stock for the holiday season.”
For all of 2022, A&F now expects net sales to be down in the range of 2 to 3 percent from $3.7 billion in 2021. This compares to the previous outlook of down mid-single-digits. The outlook includes an estimated adverse impact of about 250 basis points from foreign currency, up from an estimated 200 basis points last quarter.
Operating margin for 2022 is seen in the range of 2 to 3 percent, compared to the previous outlook of 1 to 3 percent.
