Abercrombie & Fitch (ANF) Misses Q3 EPS by 19c; Comps Fell 6%

Abercrombie & Fitch (NYSE: ANF) reported Q3 EPS of $0.02, $0.19 worse than the analyst estimate of $0.21. Revenue for the quarter came in at $821.7 million versus the consensus estimate of $830.6 million. Comparable sales for the third quarter down 6%.

"As expected, our third quarter was challenging. While Hollister improved sequentially, it was more than offset by disappointing performance in A&F. On a total company basis, conversion trends remained positive across both channels and the direct-to-consumer business grew domestically and internationally. In addition, we remained disciplined as expense and inventory were well controlled.

We were pleased with the progress in Hollister where the comparable sales trend improved throughout the quarter. There continued to be positive response to Hollister's product innovations, emerging categories and overall customer experience and we expect the comparable sales trend to further improve in the fourth quarter.

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. While we anticipate the A&F business will remain challenging through the balance of the fiscal year, we continue to move aggressively to evolve the brand across all channels through significant changes in product, customer experience and marketing. A comprehensive set of strategic and operational actions is being taken by an experienced team under new leadership, and we expect to see benefits as our efforts gain traction."

Outlook

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
• A gross margin rate down slightly to last year's adjusted non-GAAP rate of 60.7%, driven by lower average unit retail, partially offset by lower average unit cost
• Operating expense, including a lease termination charge of approximately $16 million, to be up about 1% from last year's adjusted non-GAAP operating expense of $554 million, with the lease termination charge partially offset by savings from lower sales and expense reduction efforts
• Net income attributable to noncontrolling interests of approximately $1 million
• A weighted average diluted share count of approximately 68 million shares, excluding the effect of potential share buybacks

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.

The company now expects capital expenditures to be approximately $140 million for the full year.

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 U.S. The company also anticipates closing approximately 35 stores in the U.S. in the fourth quarter through natural lease expirations, in addition to the 15 stores closed year to date.

Excluded from the company's outlook are the effects of certain potential items, such as asset impairment charges, litigation charges and insurance recoveries.

For earnings history and earnings-related data on Abercrombie & Fitch (ANF) click here.

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