Abercrombie turnaround continues with 30% jump in Q4 profit

Abercrombie & Fitch's efforts to attract more shoppers with a better store experience and updated merchandise mix are paying off as the retailer reported an unexpected increase in same-store sales and a 30% increase in profit for the fourth quarter.



Abercrombie said overall same-store sales rose 1% in the quarter ended Jan. 30, the first gain in the metric since the third quarter 2012. Analysts on average were expecting a decline of 0.10%. The gain in same-store sales was driven by a 4% increase in the Hollister division.



Net sales decreased 0.6% to $1.11 billion, with the decline due to the impact of foreign exchange. Direct-to-consumer and omnichannel sales grew to roughly 28% of total company net sales for the fourth quarter, compared to 27% of total company net sales last year.



Net income surged 30.1% to $57.7 million.



Excluding items, the retailer earned $1.08 per share, topping Wall Street analyst estimates of 99 cents per share.



"We were pleased to deliver results in line with our expectations against the backdrop of a challenging environment that included currency, traffic and weather headwinds," said Arthur Martinez, executive chairman. "Our results for the fourth quarter reflect continued progress on a number of fronts and included a return to positive comparable sales, higher average unit retails as promotional activity was moderated, and meaningful improvement in adjusted operating income on a constant currency basis. In addition, inventory continued to be well managed and we generated strong free cash flow for the year."



During the year, the company opened 30 new stores, including 15 international full-price, six U.S. full-price and 9 U.S. outlet stores. The company also closed 59 stores, primarily in the U.S.



"2015 was a year of tremendous change for us," Martinez added. "We completed our move to a branded structure, strengthened our teams and improved our core processes. More importantly, we evolved our assortment and we refocused our attention on our customer through greater accountability and empowerment at the store level, and through changes in our in-store experience.”



Martinez noted that 2016 is likely to remain a “challenging environment, but we believe we are on the right track and we will continue to focus on delivering a customer-centric shopping experience and compelling assortments based on clearly defined brand positions."



In terms of the outlook for fiscal 2016, the company expects flat to slightly positive comparable sales, adverse effects from foreign currency on sales of about $50 million and a gross margin of 61.9% on a constant currency basis





For fiscal 2016, the company expects:



• Flat to slightly positive comparable sales; and



• Adverse effects from foreign currency on sales of approximately $50 million.



The company plans to open approximately 15 full-price stores in fiscal 2016, including approximately 10 in international markets, primarily China, and approximately five in the U.S. It also plans to open approximately 10 outlet stores, primarily in the U.S.



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



Abercrombie operates 754 stores in the United States and 178 stores across Canada, Europe, Asia, and the Middle East.