Abercrombie & Fitch Co. (ANF), a leading international specialty retailer, reported relatively weak third quarter 2009 results with a net income of $38.8 million or 44 cents per share, compared to a net income of $63.9 million or 72 cents per share in the year-earlier quarter.
The year-over-year decline in results was primarily due to the continued economic downturn plaguing the industry that has resulted in reduced consumer discretionary income and cuts in non-essential spending.
Overall net sales of the company during the quarter decreased 15% to $765.4 million from $896.3 million in the year-ago quarter. Total company direct-to-consumer net sales increased 11% year-over-year to $63.9 million, while overall comparable-store sales decreased 22%.
Gross profit rate during the quarter decreased 240 basis points year-over-year due to a lower average unit retail. Stores and distribution expense (as a percentage of sales) increased to 48.3% during the quarter from 43.1% in the prior-year period due to higher store occupancy costs.
The marketing, general and administrative expenses decreased during the quarter from $105.0 million to $88.1 million due to savings related to employee compensation and benefits, and cut in travel and outside services.
However, the rate of sales decline of the company was much higher than the reduction in expenses. Furthermore, Abercrombie witnessed an increase in rents, depreciation and lease termination costs related to the exit of RUEHL branded stores.
During the second quarter, management had approved the closure of 29 RUEHL stores and associated direct-to-consumer operations. Abercrombie incurred $23.6 million and $10.1 million of pre-tax charges during the second and third quarter respectively, to exit RUEHL. The company expects to incur $60 million in pre-tax charges to exit the RUEHL business, which is expected to be complete by the end of fiscal 2009.
At third quarter end, Abercrombie had $466.9 million of cash and cash equivalents. During the quarter, the company opened a flagship store in Milan, two Hollister mall-based stores in the U.K., and a Hollister store and Abercrombie kids store each in the domestic market. Internationally, the company intends to open six mall-based stores in the fourth quarter, including one Abercrombie store in Tokyo, and five Hollister stores in the U.K.
Abercrombie reiterated its earlier reduced capital expenditures projection for fiscal 2009 of $185 million, due to lower-than-expected construction costs and the reduction and deferment of non-essential projects related to existing stores.
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