Abercrombie shrinks loss but still disappoints

Cost cuts helped Abercrombie & Fitch Co. put a sizable dent in its net loss during first quarter 2016, but the teen apparel retailer reported lower than expected sales and earnings as store traffic declined, particularly overseas.



Abercrombie reported a net loss of $39.6 million, down from $63.2 million in the year-ago period, Expense reduction efforts and the realization of savings on lower sales drove the loss reduction.



Net sales dropped 3% to $685.5 million from about $707 million, missing Wall Street projections.



Total company same-store sales also missed estimates with a 4% decline. This included an 8% decline at the Abercrombie brand and flat performance at the Hollister brand. The retailer cited traffic headwinds, especially in international and U.S. flagship and tourist stores, as dampening same-store sales results.



Direct-to-consumer and omnichannel sales grew to approximately 24% of total company net sales up slightly from approximately 23% in the prior-year period.



“Our results for the quarter reflect significant traffic headwinds, particularly in international markets and in our U.S. flagship and tourist stores, resulting in negative comparable sales," said Arthur Martinez, executive chairman of Abercrombie & Fitch. "Overall, our business remains well managed in these challenging times, with our assortment and customer-centricity efforts driving improved conversion, and expense and inventory well controlled.”



The company plans to open approximately 15 new stores in fiscal 2016, including approximately 10 in international markets, primarily China, and approximately five in the U.S. Abercrombie now plans to open six new outlet stores, primarily in the U.S.



In addition, the company anticipates closing up to 60 stores in the U.S. during the fiscal year through natural lease expirations.



During the second quarter, Abercrombie expects continued challenging same-store sales, with improvements in the second half of the year. For the fiscal year, the retailer expects adverse effects of foreign currency on sales of approximately $10 million, as well as capital expenditures in the range of $150 million to $175 million for the full year.



"We expect the second quarter to remain challenging, but to see better results in the back half of the year as our assortments continue to improve and we see returns from significant investments in marketing, store management and omnichannel,” Martinez said. "In addition, with the new brand presidents and other key roles now filled, we have a strong team in place to drive our brands forward and capitalize on the many opportunities we see ahead of us."