Abercrombie & Fitch Earnings: Margins Shrink on Rising Costs, Net Income Falls

Rising costs hurt S&P 500 (NYSE:SPY) component Abercrombie & Fitch (NYSE:ANF) in the first quarter as profit dropped from a year earlier. Abercrombie & Fitch is an American specialty retailer company that, through its wholly-owned subsidiaries, operates stores and direct sales of casual apparel for men, women, and children.

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Abercrombie & Fitch Earnings Cheat Sheet for the First Quarter

Results: Net income for Abercrombie & Fitch fell to $3 million (3 cents per share) vs. $25.1 million (28 cents per share) a year earlier. This is a decline of 88.1% from the year-earlier quarter.

Revenue: Rose 10.1% to $921.2 million from the year-earlier quarter.

Actual vs. Wall St. Expectations: Abercrombie & Fitch beat the mean analyst estimate of one cent per share. It fell short of the average revenue estimate of $951.4 million.

Quoting Management: Mike Jeffries, Chief Executive Officer and Chairman of the Board of Abercrombie & Fitch Co., said:”While we are disappointed that European sales trends remain challenging in a very difficult macroeconomic environment, we are largely satisfied with our overall performance for the quarter in that context. Our U.S. business, including direct-to-consumer, increased 4% on a comparable basis, on top of a strong performance last year. Our international business comped negatively, but the economics remain strong and we delivered overall international sales growth of 42% including a strong performance in direct-to-consumer. With cotton cost issues now largely behind us, we look forward to strong year over year earnings growth in the back half of the year.”

Key Stats:

The company has enjoyed double-digit year-over-year percentage revenue growth for the past five quarters. Over that span, the company has averaged growth of 18.3%, with the biggest boost coming in the second quarter of the last fiscal year when revenue rose 22.9% from the year earlier quarter.

Gross margin shrank 2.4 percentage points to 62.6%. The contraction appeared to be driven by increased costs, which rose 17.7% from the year earlier quarter while revenue rose 10.1%.

The company beat estimates last quarter after being in line with expectations in the fourth quarter of the last fiscal year with net income of $1.12 per share.

Looking Forward: Analysts appear increasingly optimistic about the company’s results for the next quarter. The average estimate for the second quarter has moved up from 37 cents a share to 40 cents over the last ninety days. Over the past three months, the average estimate for the fiscal year has climbed from $3.49 per to share to $3.55.

(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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