Hollister Comps Flat in Q1

ABERCROMBIE & FITCH REPORTS FIRST QUARTER RESULTS

New Albany, Ohio, May 26, 2016:  Abercrombie & Fitch Co. (ANF) today reported a GAAP net loss per diluted share of $0.59 for the first quarter ended April 30, 2016, compared to a GAAP net loss per diluted share of $0.91, or an adjusted non-GAAP loss per diluted share of  $0.53 excluding certain items, for the first quarter last year. 

GAAP net loss per diluted share for the quarter was adversely impacted by approximately $0.05 related to changes in foreign currency exchange rates compared to the prior year. 

Arthur Martinez, Executive Chairman, said:

“Our results for the quarter reflect significant traffic headwinds, particularly in international markets and in our U.S. flagship and tourist stores, resulting in negative comparable sales. However, in the face of these headwinds, we were encouraged by our U.S. business, where comparable sales improved in the Hollister brand, and gross margin rate increased meaningfully for both brands.

“Overall, our business remains well managed in these challenging times, with our assortment and customer-centricity efforts driving improved conversion, and expense and inventory well controlled.

“We expect the second quarter to remain challenging, but to see better results in the back half of the year as our assortments continue to improve and we see returns from significant investments in marketing, store management and omnichannel.  In addition, with the new brand presidents and other key roles now filled, we have a strong team in place to drive our brands forward and capitalize on the many opportunities we see ahead of us.”

First Quarter Sales Results

Net sales for the first quarter of $685.5 million were down 3% over last year, with comparable sales for the first quarter down 4%.

(1) Comparable sales are calculated on a constant currency basis.

(2) Abercrombie includes the Abercrombie & Fitch and abercrombie kids brands.

By brand, net sales for the first quarter decreased 5% to $323.3 million for Abercrombie and decreased 2% to $362.1 million for Hollister over last year.

By geography, net sales for the first quarter decreased 5% to $425.4 million in the U.S. and were approximately flat at $260.1 million in international markets over last year.

Direct-to-consumer and omnichannel sales grew to approximately 24% of total company net sales for the first quarter, compared to approximately 23% of total company net sales last year.

Additional First Quarter Results Commentary

The gross profit rate for the first quarter was 62.1%, 410 basis points higher than last year.  Excluding certain items last year, the gross profit rate reflected an improvement of 100 basis points on a constant currency basis, primarily due to higher average unit retails, partially offset by higher average unit costs.

Stores and distribution expense for the first quarter was $369.1 million, down from $391.6 million last year, primarily due to expense reduction efforts and the realization of savings on lower sales, partially offset by higher direct-to-consumer expense.  Excluding certain items last year, stores and distribution expense decreased $17.8 million.

Marketing, general and administrative expense for the first quarter was $114.4 million, up from $107.5 million last year, primarily due to higher legal, marketing and other expenses.  Excluding certain items last year, marketing, general and administrative expense increased $8.7 million.

Excluded from adjusted results for the first quarter last year were restructuring benefits of $1.6 million and asset impairment charges of $6.1 million.

Net other operating income for the first quarter was $2.9 million, compared to net other operating income of $2.0 million last year.

Operating loss for the first quarter was $54.9 million, compared to $90.2 million for the first quarter last year.  Excluding certain items last year, operating loss increased $2.6 million.

The effective tax rate for the first quarter was 35%, compared to 33%, or 35% excluding certain items, last year.

Net loss attributable to Abercrombie & Fitch Co. for the first quarter was $39.6 million compared to $63.2 million for the first quarter last year. Excluding certain items last year, net loss attributable to Abercrombie & Fitch Co. increased $2.4 million.

Other Developments

As previously announced, on May 20, 2016 the Board of Directors declared a quarterly cash dividend of $0.20 per share on the Class A Common Stock of Abercrombie & Fitch Co., payable on June 13, 2016 to stockholders of record at the close of business on June 3, 2016.

Fiscal 2016 Outlook

For fiscal 2016, with references to last year being on an adjusted non-GAAP basis, the company now expects:

• Comparable sales to remain challenging in the second quarter, but to improve in the second half of the year
• Adverse effects from foreign currency on sales of approximately $10 million and on operating income of approximately $15 million, including the year-over-year impact from hedging
• A gross margin rate up slightly to last year`s rate of 61.9%, but down modestly in the second quarter
• Operating expense dollars to be approximately flat to last year, with investments in marketing, store management and omnichannel offset by savings from expense reduction efforts.  Based on the timing of these investments, the company expects operating expense dollars in the second quarter to be up 2% to 3% over last year
• An effective tax rate in the mid-to-upper 30s
• A weighted average diluted share count of approximately 68 million shares, excluding the effect of potential share buybacks

The company continues to expect capital expenditures in the range of $150 million to $175 million for the full year.

The company plans to open approximately 15 new stores in fiscal 2016, including approximately 10 in international markets, primarily China, and approximately five in the U.S.  The company now 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.

Excluded from the company`s outlook are the effects of certain potential items, including, but not limited to, insurance recoveries, impairments and other items.

About Abercrombie & Fitch Co.

Abercrombie & Fitch Co. is a leading global specialty retailer of high-quality, casual apparel for Men, Women and kids with an active, youthful lifestyle under its Abercrombie & Fitch, abercrombie kids and Hollister Co. brands.  At the end of the first quarter, the company operated 745 stores in the United States and 180 stores across Canada, Europe, Asia and the Middle East. The company also operates e-commerce websites at www.abercrombie.com, www.abercrombiekids.com and www.hollisterco.com.