Abercrombie & Fitch (ANF) Announces Closure of its RUEHL Brand; Amends Existing Credit Agreement
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Abercrombie & Fitch (NYSE: ANF) approved the closure of its 29 RUEHL branded stores and related direct-to-consumer operations. The Company anticipates the closure will be substantially complete by the end of the current fiscal year.
RUEHL generated a pre-tax operating loss of approximately $58 million for the fiscal year ended January 31, 2009, including a non-cash impairment charge of approximately $22 million. The pre-tax operating loss included store operating results and home office and other costs directly attributable to RUEHL operations.
In connection with the strategic review of the RUEHL operations, the Company incurred approximately $51 million in non-cash, pre-tax impairment charges in its first quarter of Fiscal 2009. In addition, as a result of exiting RUEHL, the Company currently estimates that it will incur additional pre-tax charges of approximately $65 million, including the net present value of lease-related charges, severance, and other charges. This estimate is based on a number of significant assumptions and could change materially. The additional charges are expected to be substantially recognized during the remaining three quarters of Fiscal 2009 in accordance with applicable accounting rules. The Company estimates the net cash outflow associated with the RUEHL store and direct-to-consumer closings, prior to associated tax benefits, to be approximately $75 million. This estimate is also based on a number of significant assumptions and could change materially. On a full year basis, the marginal tax rate applied to charges associated with exiting RUEHL is estimated to be approximately 39%.
The Company also announced that it has amended its existing credit agreement effective June 16, 2009. The amended credit agreement allows the Company to exclude from its calculation of the minimum coverage and maximum leverage ratios up to $61 million of the estimated $65 million of additional pre-tax charges associated with exiting RUEHL, as described above, in addition to certain other non-cash and non-recurring charges. The RUEHL-related impairment charges will also be excluded from the ratio calculations. In addition, the required minimum coverage ratio will be reduced through the end of the 2010 fiscal year. In connection with these changes, the Company agreed to a reduction in the amount of available credit to $350 million from $450 million, an increase in the facility fee and borrowing costs, and a capital expenditure limit of $600 million for the 2009 and 2010 fiscal years, including not more than $275 million for Fiscal 2009. Additional details pertaining to the amended credit agreement will be included in a Current Report on Form 8-K expected to be filed by the Company with the Securities and Exchange Commission on or before June 22, 2009.[SM]
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