Abercrombie & Fitch unveiled a wider-than-expected loss and a drop in revenue in its first quarter on Thursday, although the specialty retailer of casual apparel witnessed sequential improvements in several areas during the quarter. The results come as the struggling retailer works through a host of changes it hopes will revive its damaged image.
Drop in net sales partly due to adverse currency
Abercrombie & Fitch’s net loss for the first quarter widened to $63.25 million or 91 cents per share from $23.67 million or 32 cents per share in the prior year. Excluding certain charges, the retailer reported a net loss of 53 cents per share, while the loss totaled 17 cents per share last year. The struggling teen retailer’s net sales decreased 14% to $709.42 million from $822.43 million, driven by a comparable sales drop of 8% and an adverse effect from changes in foreign currency exchange rates of 6%.
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Analysts polled by Thomson Reuters had forecast a per-share loss of 34 cents and $730.9 million in revenue for the quarter.
By brand, same-store sales dropped 9% for Abercrombie & Fitch and 6% for Hollister. The retailer’s net sales decreased 11% to $448.9 million in the U.S., and comparable sales declined 7%. However, internationally, net sales were 18% lower at $260.5 million, and comparable sales decreased 9%.
The company’s gross profit rate for the quarter dropped 420 basis points to 58%. However, thanks largely due to a lower average unit cost, the gross profit rate was up 70 basis points to 61.8% on a constant currency basis, excluding certain charges.
Exuding confidence, the teen apparel retailer said it anticipates that comparable sales will improve in the second half of the year as its Hollister line of clothing begins to show signs of improvement. Abercrombie & Fitch reported a rise in demand in Europe and Asia in the first quarter.
In premarket trading, Abercrombie & Fitch’s shares rose 3.6% to $20.35.
Abercrombie & Fitch’s efforts to fix its image
As reported by ValueWalk, last December, Abercrombie & Fitch announced that it was losing its controversial chief executive, Michael Jeffries, to retirement. The retailer has been operating without a CEO until a replacement can be found.
While unveiling the first quarter results, executive chairman Arthur Martinez indicated that the quarter’s results were pressured by both internal and external factors, though the retailer witnessed sequential sales improvements, especially within its Hollister brand. He said Abercrombie & Fitch’s sales continued to improve in May. Earlier, the teen retailer had warned that it would face declines in its logo business and significant currency pressure in the first half of the year.
As reported by ValueWalk, last month, the retailer said it would no longer hire staff because of their physique or physical attractiveness. This is one of the series of changes to be made to store policies in order to focus more on customers rather than on how employees look. The retailer’s hiring policy for store employees will now be “more inclusive and diverse” while employees will no longer be required to wear exclusively Abercrombie & Fitch clothes, which will allow them to be “more individualistic.”
The changes at the retailer amount to a broad repudiation of the highly sexual tone set by Jeffries and backed by highly specific policies and procedures. He created a cult following with teens, who clamored for Abercrombie & Fitch’s logo-emblazoned T-shirts and sweatshirts and willingly paid full price for tattered jeans.