The results did not meet Wall Street expectations.
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The company’s total net sales fell 4.2 per cent to $783.2-million (U.S.). Gross margin slipped from 62.3% year-over-year to 60.9%, primarily due to higher average unit costs, partially offset by lower average unit retails.
By brand, same-store sales fell 2% at Hollister and dropped 7% at Abercrombie. That now appears to be out the window. Analysts had expected a smaller loss of $0.21. Overall, we remained disciplined as gross margin rate was substantially maintained on a constant currency basis and expense and inventory were tightly controlled. Consensus estimates also call for third-quarter earnings per share sales of $0.43 and net sales of $862.38 million. The company plans to open approximately 15 new stores in fiscal 2016, including approximately 10 in global markets, primarily China, and approximately five in the U.S. The company plans to open six new outlet stores, primarily in the U.S. In addition, the company anticipates closing up to 60 stores in the U.S. during the fiscal year through natural lease expirations.
Flagship and tourist locations continued to account for the vast majority of the comparable sales decline as traffic remained a significant headwind.
The company warned that it expects sales “to remain challenging through the second half of the year, with a disproportionate effect from flagship and tourist locations”.
Abercrombie & Fitch’s strengths such as its compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations are countered by the fact that the company’s return on equity has been disappointing.
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Still, Martinez said that the company expects to see “traction” from its investments in marketing and new products.
