Abercrombie & Fitch (ANF) Prelim. Q3 EPS Tops Views; Will Close All Stand-Alone Gilly Hicks
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Abercrombie & Fitch Co. (NYSE: ANF) today reported on the Company's performance for the quarter ended November 2, 2013 and provided an updated full year outlook.
Net sales for the thirteen weeks ended November 2, 2013 decreased 12% to $1.033 billion from $1.170 billion for the thirteen weeks ended October 27, 2012. The Street was looking for sales of $1.07 billion.
Total comparable sales for the quarter, including direct-to-consumer sales, decreased 14% with comparable U.S. sales decreasing 14% and comparable international sales decreasing 15%. Total direct-to-consumer comparable sales increased 11% for the quarter. Third quarter comparable sales are compared to the thirteen-week period ended November 3, 2012.
For the third quarter, the Company expects to incur pre-tax charges in the aggregate of approximately $90 million - $100 million related to its restructuring plans for the Gilly Hicks brand (as discussed below), non-cash impairment charges related to other stores, and charges related to the Company's profit improvement initiative. Excluding these charges, the Company expects to report adjusted non-GAAP earnings per diluted share at the higher end of prior non-GAAP guidance of $0.40 to $0.45. This expectation now reflects lower sales and gross margin rate than anticipated offset by expense and other favorabilities. Pending finalization of the material charges mentioned above, the comparable U.S. GAAP earnings per share figure is not available at this time, but will be available when earnings are released on November 21, 2013.
The Street expected Q3 EPS of $0.40.
Based on a projected low double digit decrease in comparable sales for the fourth quarter, the Company expects full year adjusted non-GAAP earnings per diluted share to be in the range of $1.40 to $1.50. This projection also assumes significant gross margin rate erosion in the fourth quarter as the Company clears through excess inventory.
Consensus views call for Q4 EPS of $1.47.
The guidance for the full year does not include charges related to the Company's restructuring plans for the Gilly Hicks brand, other impairment and store closure charges, charges related to the implementation of the Company's profit improvement initiative, or the effect of any additional share repurchases.
Gilly Hicks Update
The Company also announced that it plans to close all of its stand-alone Gilly Hicks stores. The Company expects to substantially complete the closures by the end of the first quarter of Fiscal 2014. Store closures in Europe are subject to applicable notice and consultation provisions. The Company will continue to offer Gilly Hicks branded intimate apparel through its Hollister stores and direct-to-consumer business.
The Company estimates that it will incur pre-tax charges of approximately $90 million, including approximately $40 million of non-cash impairment charges and approximately $50 million of lease-related, severance and other charges. The Company expects the charges to be substantially recognized in the third and fourth quarters of Fiscal 2013 and the first quarter of Fiscal 2014. The Company also estimates that the net cash outflow associated with the Gilly Hicks store closures, prior to any associated tax benefits, will be approximately $55 million. These estimates are based on a number of significant assumptions and could change materially.
Excluding the above-referenced charges, the Company anticipates that its Gilly Hicks operations will incur a pre-tax loss of approximately $30 million in Fiscal 2013. As a result of the store closures and reductions in overhead expenses, the Company expects the brand to operate on approximately a break-even basis in Fiscal 2014.
Amended Credit and Term Loan Agreements
In conjunction with the decision to close Gilly Hicks stores, the Company amended its existing Credit and Term Loan Agreements effective November 4, 2013. The amendments allow the Company to exclude from its calculation of the minimum coverage and maximum leverage ratios up to $60 million of cash charges associated with the Gilly Hicks restructuring. In addition, the required minimum coverage ratio will be temporarily reduced through the second quarter of the 2015 Fiscal year. Additional details pertaining to the amendments 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 November 7, 2013.
Net sales for the thirteen weeks ended November 2, 2013 decreased 12% to $1.033 billion from $1.170 billion for the thirteen weeks ended October 27, 2012. The Street was looking for sales of $1.07 billion.
Total comparable sales for the quarter, including direct-to-consumer sales, decreased 14% with comparable U.S. sales decreasing 14% and comparable international sales decreasing 15%. Total direct-to-consumer comparable sales increased 11% for the quarter. Third quarter comparable sales are compared to the thirteen-week period ended November 3, 2012.
For the third quarter, the Company expects to incur pre-tax charges in the aggregate of approximately $90 million - $100 million related to its restructuring plans for the Gilly Hicks brand (as discussed below), non-cash impairment charges related to other stores, and charges related to the Company's profit improvement initiative. Excluding these charges, the Company expects to report adjusted non-GAAP earnings per diluted share at the higher end of prior non-GAAP guidance of $0.40 to $0.45. This expectation now reflects lower sales and gross margin rate than anticipated offset by expense and other favorabilities. Pending finalization of the material charges mentioned above, the comparable U.S. GAAP earnings per share figure is not available at this time, but will be available when earnings are released on November 21, 2013.
The Street expected Q3 EPS of $0.40.
Based on a projected low double digit decrease in comparable sales for the fourth quarter, the Company expects full year adjusted non-GAAP earnings per diluted share to be in the range of $1.40 to $1.50. This projection also assumes significant gross margin rate erosion in the fourth quarter as the Company clears through excess inventory.
Consensus views call for Q4 EPS of $1.47.
The guidance for the full year does not include charges related to the Company's restructuring plans for the Gilly Hicks brand, other impairment and store closure charges, charges related to the implementation of the Company's profit improvement initiative, or the effect of any additional share repurchases.
Gilly Hicks Update
The Company also announced that it plans to close all of its stand-alone Gilly Hicks stores. The Company expects to substantially complete the closures by the end of the first quarter of Fiscal 2014. Store closures in Europe are subject to applicable notice and consultation provisions. The Company will continue to offer Gilly Hicks branded intimate apparel through its Hollister stores and direct-to-consumer business.
The Company estimates that it will incur pre-tax charges of approximately $90 million, including approximately $40 million of non-cash impairment charges and approximately $50 million of lease-related, severance and other charges. The Company expects the charges to be substantially recognized in the third and fourth quarters of Fiscal 2013 and the first quarter of Fiscal 2014. The Company also estimates that the net cash outflow associated with the Gilly Hicks store closures, prior to any associated tax benefits, will be approximately $55 million. These estimates are based on a number of significant assumptions and could change materially.
Excluding the above-referenced charges, the Company anticipates that its Gilly Hicks operations will incur a pre-tax loss of approximately $30 million in Fiscal 2013. As a result of the store closures and reductions in overhead expenses, the Company expects the brand to operate on approximately a break-even basis in Fiscal 2014.
Amended Credit and Term Loan Agreements
In conjunction with the decision to close Gilly Hicks stores, the Company amended its existing Credit and Term Loan Agreements effective November 4, 2013. The amendments allow the Company to exclude from its calculation of the minimum coverage and maximum leverage ratios up to $60 million of cash charges associated with the Gilly Hicks restructuring. In addition, the required minimum coverage ratio will be temporarily reduced through the second quarter of the 2015 Fiscal year. Additional details pertaining to the amendments 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 November 7, 2013.
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