• Q4 GAAP net income down to US$44.4m
  • FY GAPP net income drops 5.1%
  • Q4 sales fall 14%
  • FY sales drop 9%
Abercrombie said it needs to work on improving comparable sales trends

Abercrombie said it needs to work on improving comparable sales trends

Abercrombie & Fitch Co said it needs to work on improving comparable sales trends in its US and international stores after it posted fourth-quarter and full-year results somewhat below expectations.

In the three months to the end of January, the teen apparel retailer recorded GAAP net income of US$44.4m, or $0.63 per share, compared to GAAP net income of $66.1m a year earlier, or $0.85 per share.

For the full year, GAAP earnings dropped 5.1% from $54.6m, or $0.69 per share, to $51.8m, or $0.71 per share. The company had, in December, lowered its EPS forecast to $1.50 to $1.65 per share, on the assumption that fourth-quarter comparable sales would be down by a mid-to-high single-digit percentage.

Gross margin edged up slightly to 60.9% from 59% previously, in the quarter, but for the full year it narrowed to 61.8% from 62.6% in the prior year.

Abercrombie, which has been working to revive sales of its namesake and Hollister brands and reduce focus on its logo-centric clothing, saw sales drop 14% to $1.12bn in the quarter, driven by a 10% comparable sales decline. This was due to changes in foreign currency exchange rates and store closures.

For the full year, sales were down 9% to $3.74bn, driven by an 8% comparable sales decline.

Executive chairman Arthur Martinez described 2014 as a year of “significant change” for the group, that has put it “on the right path to improve profitability”.

He said fourth-quarter sales were “somewhat below expectations”, and for the full year, results came in “well below our initial expectations”, given that an expected improvement in comparable sales did not materialise.

Martinez said the company's 2015 priorities will be to improve comparable sales trends in US and international stores, and to make further strategic investments in its DTC and omni-channel business. It will also look for further ways to reduce expenses and “be more efficient”, Martinez said, in addition to “selectively” expanding its international footprint in high growth markets.

He added: “We expect the first half of 2015 to remain challenging, with declines in our logo business in 2014 persisting in the early part of 2015, but at reduced rates, as well as significant currency pressure. However, we believe that the benefits of all of the changes we have made will be reflected in improved performance in the second half of the year."

Neil Saunders, CEO of Conlumino, described the results as “dismal”, capping what he said has been “a torrid year for the now out-of-favour teen retailer”.

“The priorities for the year ahead are clear, even if they are difficult to accomplish. To achieve them A&F needs stable and focused leadership. Michael Jeffries’ removal was a good first step but rebuilding a new team around a new leader is now a matter of priority,” he noted.

“If anything, A&F signifies how difficult it is to succeed in retail, even for a once mighty brand that was arguably a leader in its field. With competition more intense than it has ever been, the price for not remaining relevant is now punishingly high.”

Additionally, Abercrombie announced its exit from the Australian market after just a few years. The retailer, which operates its namesake brand, AbercrombieKids and Hollister & Co in Australia, will close its two stores in Sydney and Melbourne.

CFO Joanne Crevoiserat said the performance of the stores had been “disappointing”, even after allowing for the seasonality challenge of operating in the southern hemisphere. The stores will close the end of fiscal 2015 and will incur lease termination charges of just over $2m.

COO Jonathan Ramsden, added: “With a market like Australia, which we always knew was a test, we wanted to make sure that if the test didn't perform we had the ability to exit fairly quickly which is what we have done. That is consistent with a long pattern of us being disciplined about knowing when it is time to exit a particular brand or store or operation.”