Abercrombie & Fitch Co. today reported unaudited results which reflected record first quarter net income of $40.4 million and net income per share on a fully- diluted basis of $0.45 for the first quarter ended April 30, 2005.
First Quarter Highlights
– Total Company net sales increased 33% to $546.8 million; comparable
store sales increased 19%.
– Abercrombie & Fitch first quarter net sales increased 16% to $302.1 million; Abercrombie & Fitch comparable store sales increased by 16%.
– abercrombie first quarter net sales increased 36% to $63.0 million;
abercrombie comparable store sales increased by 32%.
– Hollister first quarter net sales increased 71% to $179.2 million;
Hollister comparable store sales increased by 21%.
– The Company's operating income increased 46% to $68.3 million,
reflecting a 13% operating margin.
– Net income per share on a fully-diluted basis rose 50% to $0.45 from
$0.30 in fiscal 2004.
– Abercrombie & Fitch Co. repurchased 475,000 shares of its Class A
Mike Jeffries, Chief Executive Officer and Chairman of the Board of Abercrombie & Fitch Co., said: “Our outstanding results this quarter reflect the success of our strategy. We continue to focus on achieving the highest quality products in the casual sector. I am very pleased with the improvement we have made in our organization both in merchandising where we have focused on building great strength in each category across our brands, as well as in the stores where our investment in additional staff and management hours as well as training have contributed to substantial improvements in store productivity. We believe we are well positioned for continued strong performance as the year progresses.”
First Quarter Financial Results
Net sales for the thirteen weeks ended April 30, 2005 increased 33% to $546.8 million from $411.9 million for the thirteen weeks ended May 1, 2004. Comparable store sales increased 19% in the quarter versus last year.
In the first quarter, sales from the direct-to-consumer business, excluding shipping and handling revenue, increased 19% versus last year. International direct-to-consumer sales increased 20% versus the prior year.
The gross margin rate for the quarter, reflecting the reclassification of certain costs as described below, was 65.3%, up 30 basis points compared to last year.
Marketing, General and Administrative expense, as a percentage of sales declined to 12.3% from 13.5% reflecting in part the charge in 2004 of $8 million associated with the previously announced settlement of three related diversity lawsuits.
The effective tax rate for the first quarter was 41.9% as compared to 38.5% for the 2004 comparable period. The increase in the rate was primarily due to a $2.3 million charge related to the Company's change in estimate of the potential outcome of certain state tax matters. The company expects the full year effective tax rate to be approximately 39%.
Net income for the quarter increased 38% to $40.4 million from $29.3 million for the first quarter of fiscal 2004.
Net income per share on a fully-diluted basis for the first quarter ended April 30, 2005 rose 50% to $0.45 versus $0.30 for the comparable period last year.
During the first quarter of fiscal 2005, Abercrombie & Fitch Co. repurchased 475,000 shares of its Class A Common Stock as part of its previously announced stock repurchase program. The total cost of the common stock repurchased was $26.9 million.
The Company previously said it intends to manage its capital structure by maintaining a level of approximately $300 million to $350 million in cash and marketable securities. Based on its plan to increase inventory commitments for the back-to-school selling period, particularly in the denim category, the Company now expects its cash and marketable securities balance to be between $150 million and $200 million at the end of the second and third quarters of fiscal 2005. Based on seasonal shopping trends, the Company expects its cash and marketable securities level will increase during the fourth quarter of fiscal 2005 and at that time the Company expects to return to a level of $300 million to $350 million in cash and marketable securities.
By the end of fiscal 2005, the Company plans to increase gross square- footage by approximately 11%, primarily through opening flagship Abercrombie & Fitch stores in New York and Los Angeles, as well as through the addition of approximately 60 new Hollister stores. In addition, the Company plans to convert approximately five Abercrombie & Fitch and five abercrombie kids stores into Hollister stores during fiscal 2005. The Company also expects to open approximately seven RUEHL stores by the end of fiscal 2005.
The Company now expects total capital expenditures for fiscal 2005 to be between $250 million and $275 million. The majority of the expenditures are related to new store construction, remodels, and home office investments. These amounts do not reflect construction allowances which are recorded on the balance sheet as a deferred credit as opposed to a reduction in capital spending.
The Company has signed leases for six Canadian locations during the quarter including three Abercrombie & Fitch and three Hollister stores expected to open in late 2005 or early 2006.
The Company has established subsidiaries in Europe and Japan and has begun to seek locations for stores to open in late 2006 or 2007.
The Company remains on plan to open its 34,000 gross square foot flagship Abercrombie & Fitch store, located on the corner of 5th Avenue and 56th Street in New York, in the fall of 2005.
The Board of Directors declared a quarterly dividend of $0.125 per share on the Class A Common Stock of Abercrombie & Fitch Co. payable on June 21, 2005 to shareholders of record at the close of business on June 1, 2005.
During the first quarter, the Company opened seven new stores: four Hollister, two Abercrombie & Fitch and one RUEHL store. The Company temporarily closed six Abercrombie & Fitch stores during the first quarter due to remodeling. The six stores will reopen during the second and third quarters of fiscal 2005. Additionally, the Company closed two abercrombie stores and one Abercrombie & Fitch store.
Reclassification of Income Statement
First quarter results reflect a reclassification of the Company's income statement. In prior periods the Company included buying and occupancy costs as well as certain home office expenses as part of the gross margin calculation. The Company believes that presenting gross profit as a function of sales reduced solely by cost of goods sold, as well as presenting as individual expense categories store and distribution expenses and marketing, general and administrative expenses, provides a clearer and more transparent representation of gross selling margin. Prior period results have been reclassified accordingly.
The Company operated 351 Abercrombie & Fitch stores, 167 abercrombie stores, 260 Hollister stores and 5 RUEHL stores as of April 30, 2005. The Company operates e-commerce websites at www.abercrombie.com , www.abercrombiekids.com, and www.hollisterco.com .
Today at 4:30 PM, Eastern Time, the Company will conduct a conference call. Management will discuss the Company's performance, its plans for the future and will accept questions from participants. To listen to the live conference call, dial (800) 811-0667 or internationally at (913) 981-4901. To listen via the internet, go to www.abercrombie.com, select the Investor Relations page and click on Calendar of Events. Replays of the call will be available shortly after its completion. The audio replay can be accessed for two weeks following the reporting date by calling (888) 203-1112 or internationally at (719) 457-0820 followed by the conference ID number 9675046; or for 12 months by visiting the Company's website at www.abercrombie.com .