On May 29, Thursday, Abercombie & Fitch released their Q1 financials and things looked grim. Results reflected a GAAP net loss of $23.7 million compared to a GAAP net loss of $7.2 million the year before.
Mike Jeffries, Chief Executive Officer, said, “In what remains a difficult teen retail environment, we are pleased that earnings for the quarter were in line with our expectations. Overall sales for the quarter decreased 2%, which included strong growth in our direct-to-consumer business. In addition, comparable sales continued to head in the right direction, and included significant sequential improvement in our female business and our Abercrombie & Fitch brand as a whole.
“We remain focused on returning to growth, and believe we are taking the right steps and are on course to accomplish that goal. As we look forward to the rest of 2014, we have made significant improvements throughout the organization to better align us for success, and we are energized by the opportunities ahead of us.”
Net sales by brand for the first quarter were $317.8 million for Abercrombie & Fitch, $68.5 million for abercrombie kids and $421.6 million for Hollister Co. Comparable sales by brand, including direct-to-consumer, decreased 1% for Abercrombie & Fitch, decreased 6% for abercrombie kids, and decreased 7% for Hollister Co.
The gross profit rate for the first quarter was 62.2%, 370 basis points lower than last year, reflecting a higher mix of fall merchandise clearance selling versus last year and an increase in promotional activity.
Stores and distribution expense for the first quarter was $417.6 million, down from $449.1 million last year. The stores and distribution expense rate for the quarter was 50.8% of net sales, down 270 basis points from last year, driven primarily by savings in store payroll partially offset by higher direct-to-consumer expense and $0.8 million of charges related to the profit improvement initiative.
Restructuring charges associated with the closure of the Gilly Hicks stand-alone stores were $5.6 million for the first quarter, primarily related to lease exit costs.
The Company ended the quarter with $486 million in inventory at cost, an increase of 6% versus the prior year.
During the first quarter, the Company repurchased 3.8 million shares of its common stock at an aggregate cost of $150 million through an accelerated share repurchase. As of May 3, 2014, the Company had approximately 12.5 million shares remaining available for purchase under its publicly announced stock repurchase authorizations. The Company continues to anticipate additional share repurchases over the course of the year, utilizing free cash flow generated from operations and existing or additional credit facilities.
During the first quarter, the Company opened an Abercrombie & Fitch flagship store in Shanghai. A summary of store openings and closings for the first quarter is included with the financial statement schedules following this release.
The Company anticipates opening 15 full-price international stores throughout the year, including a small number of Abercrombie & Fitch international mall-based stores. The Company also now plans to open approximately 8 to 10 international and U.S. outlet stores during the fiscal year. In addition, the Company continues to expect to close approximately 60 to 70 stores in the U.S. during the fiscal year through natural lease expirations.
The increase from prior guidance includes additional capital expenditures related to an expanded roll-out of the new Hollister storefront that the Company has been testing since January of this year. The Company now anticipates that this new storefront will be rolled out in 75 to 100 stores by the end of the current fiscal year.