Abercrombie & Fitch Co. (NYSE: ANF) today reported that net income per share on a fully diluted basis for the third quarter ended October 30, 2004 was $0.42, including the effect of a $0.22 per share non-recurring charge that reflects the settlement of three related class action diversity lawsuits.
Third Quarter Highlights
Total Company net sales increased 17%; Hollister net sales increased 85%.
The Company's gross income rate was 43.6%, an increase of 230 basis points from last year's rate of 41.3%.
The Company repurchased 5.4 million shares of Abercrombie & Fitch Common Stock.
The Board of Directors authorized the repurchase of an additional 6 million shares of Abercrombie & Fitch Common Stock.
The Company launched RUEHL, its fourth aspirational lifestyle brand, which targets the post college customer aged 22 – 30.
Mike Jeffries, Chief Executive Officer and Chairman of the Board for Abercrombie & Fitch Co., said:
“I am extremely pleased with our progress in becoming the leading aspirational casual brand company. I believe we are offering our customer the best in-store experience together with outstanding fashion. We intend to continue to pursue our strategy of avoiding promotions. We have continued to make significant investments in and valuable additions to our design and merchandising teams as well as our store organization. At the same time, we have achieved excellent sales growth coupled with significant margin improvement. Overall, I believe each brand is well positioned for the long- term and we are committed to growing our brands profitably in both the United States and internationally.”
Abercrombie & Fitch Co. reported net sales for the thirteen weeks ended October 30, 2004 increased 17% to $520.7 million from $445.0 million for the thirteen weeks ended November 1, 2003. Comparable store sales increased 1% in the quarter.
The gross income rate for the quarter was 43.6%, up 230 basis points from last year's rate of 41.3%.
Yesterday, the Company signed a consent decree settling the class action diversity lawsuits, subject to judicial review and approval. The monetary terms of the consent decree provide that the Company will pay an aggregate amount of slightly less than $50 million to the class and for attorney's fees, costs and expenses to carry out the settlement. As a result, the Company accrued a non-recurring charge of $32.9 million, which was included in selling, general and administrative (“SG&A”) expense. This is in addition to previously accrued amounts in connection with this matter. As a consequence, reported net income per fully diluted share in the third quarter was reduced by $0.22.
Net income for the quarter was $40.1 million compared to net income of $50.5 million for the third quarter of fiscal 2003.
Net income per share on a fully diluted basis for the third quarter 2004 was $0.42 versus $0.51 for the comparable period last year.
During the third quarter of 2004, the Company repurchased 5.4 million shares of Common Stock as part of its stock repurchase program. The total cost of the stock repurchase was $179.3 million, and resulted in the reduction of the weighted average shares outstanding, which increased net income per fully diluted share by approximately $0.01 for the quarter.
The Company said it would continue to focus on returning capital, in excess of funds required to support the Company's growth, to shareholders. The Company intends to manage its capital structure by maintaining a base level of approximately $300 million to $350 million in cash.
During the third quarter, Abercrombie & Fitch management continued its efforts and investment programs for the development of all its brands.
Abercrombie & Fitch secured a highly prestigious location for a 17,000 selling square foot flagship store on the corner of 5th Avenue and 56th Street in New York, which it plans to open in the fall of 2005. This store is not only expected to achieve significant sales volume, but also provide a highly visible presence that will enhance the Abercrombie & Fitch brand image to both domestic and international customers.
The Company initiated a store investment program aimed at improving the in-store experience for its customers by increasing associate coverage on the selling floor. The Company will continue to invest in its stores to preserve the aspirational environment of its brands.
Hollister successfully introduced live video coverage from Huntington Beach, Surf City USA, in selective stores. This initiative, which has been extremely well received by customers, contributes to strengthening the powerful association of the Hollister brand with California.
During the month of September, the Company launched its fourth brand, RUEHL, with the opening of three stores in the Garden State Plaza in Paramus, New Jersey, International Plaza in Tampa, Florida and the Woodfield Shopping Center in Chicago, Illinois.
Fourth Quarter Outlook
The Company is cautious in its outlook for the fourth quarter. Assuming sales growth of approximately 12%, which would imply flat comparable store sales, net income for the fourth quarter ending January 29, 2005, would be similar to last year's net income.
The Company operated 363 Abercrombie & Fitch stores, 174 abercrombie stores, 224 Hollister Co. stores and 3 RUEHL stores at the end of the third quarter 2004. The Company operates e-commerce websites at http://www.abercrombie.com, http://www.abercrombiekids.com, and http://www.hollisterco.com .