Why Abercrombie & Fitch Earnings Fell Flat

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Abercrombie & Fitch Co. (NYSE: ANF) reported its fiscal third-quarter financial results before the markets opened on Friday. Unfortunately, unlike most other retailers this quarter, Abercrombie was seriously shaken by earnings. Although the company missed estimates, perhaps the bottom line hurt the worst.

The company posted $0.02 in earnings per share (EPS) and $821.7 million in revenue. The consensus estimates from Thomson Reuters had called for $0.21 in EPS and revenue of $830.6 million. In the same period of last year, Abercrombie posted EPS of $0.48 and $878.57 million in revenue.

Total comparable sales for the third quarter were down 6%. By brand, net sales for the quarter decreased 13% to $358.3 million for Abercrombie and decreased 1% to $463.5 million for Hollister, from the third quarter last year.

Direct-to-consumer and omnichannel sales grew to roughly 23% of total company net sales, compared to 21% of total company net sales last year.

In terms of guidance for the fiscal fourth-quarter, the company expects to see “challenging” comparable sales but modestly improved from the third quarter, and gross margin down slightly from last year’s 60.7%. The consensus estimates are $1.07 in EPS and $1.07 billion in revenue for the coming quarter.

Arthur Martinez, executive chairman, commented:

As expected, our third quarter was challenging. While Hollister improved sequentially, it was more than offset by disappointing performance in A&F. On a total company basis, conversion trends remained positive across both channels and the direct-to-consumer business grew domestically and internationally. In addition, we remained disciplined as expense and inventory were well controlled.

On the books, Abercrombie’s cash and cash equivalents totaled $469.7 million at the end of the quarter, up from $405.6 million last year.

Shares of Abercrombie & Fitch closed Thursday up nearly 4% at $16.93, with a consensus analyst price target of $18.41 and a 52-week trading range of $14.00 to $32.83. Following the release of the earnings report, the stock was down about 12% at $14.95 in early trading indications Friday.