Abercrombie & Fitch fails with teens in Q4

Troubled retailer Abercrombie & Fitch continued to be out of favor with its teen target market in the fourth quarter, with declines in both income and sales.

Looking ahead, the company said its priorities include increasing comparable sales trends in both its U.S. and international stores, making strategic investments in its omnichannel business, ongoing expense reductions, and selective expansion in high-growth international markets.

Abercrombie’s net income for the quarter ended Jan. 31, declined about one-third to $44.4 million from $66.1 million in the year ago period. The decline, however, beat analysts’ estimates, helped by cost control efforts that saw stores and distribution expense drop to $445.6 million from $505.6 million. Net sales for the quarter decreased 14% to $1.12 billion, driven by a 10% same-store sales decline (with a 6% drop in the U.S. and a 17% decline internationally), the adverse effects of changes in foreign currency exchange rates of approximately 3%, and net store closures.However, direct-to-consumer sales were a lone bright spot, rising 1%.

"2014 was a year of significant change for Abercrombie & Fitch,” said Arthur Martinez, executive chairman (Abercrombie CEO Mike Jeffries stepped down in December and the company is searching for a CEO). “I believe these changes put us on the right path to improve profitability and deliver value to shareholders. Our sales for the fourth quarter were somewhat below expectations, but a slightly better gross margin rate and strong expense management enabled us to deliver EPS within our guidance range."

The teen retailer said it anticipates closing approximately 60 U.S. during the fiscal year through natural lease expiration, and plans to open 15 full-price stores in fiscal 2015 in the key growth markets of China, Japan and the Middle East. In addition, it will open four full price stores in North America., as well as 11 outlet stores. In addition, Abercrombie is targeting capital expenditures of approximately $150 million for the fiscal year, which are prioritized toward new stores and store updates, as well as direct-to-consumer and IT investments to support growth initiatives, such as omnichannel.

“We expect the first half of 2015 to remain challenging, with declines in our logo business in 2014 persisting in the early part of 2015, but at reduced rates, as well as significant currency pressure,” said Martinez. “However, we believe that the benefits of all of the changes we have made will be reflected in improved performance in the second half of the year." For the full fiscal year, net income fell 5% to $51.8 million, from $54.6 million. Total company sales fell 9% to $3.74 billion and same-store sales dropped 10%. Direct-to-consumer sales climbed 10%.