Nov 6, 2013
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Abercrombie & Fitch reports sales drop and closure of Gilly Hicks

Nov 6, 2013

Abercrombie & Fitch Co reported another double-digit drop in quarterly same-store sales and warned of a tough holiday season, as the teen retailer struggles with the changing tastes of young shoppers.

Shares of the company, which also slashed its full-year adjusted profit forecast, fell 15 percent after the bell.

Source: abercrombie.com

Abercrombie's same-store sales declined 14 percent in the third quarter, its seventh straight quarterly decline. They fell 10 percent in the second quarter ended August 3.

The company expects a low double-digit decrease in comparable sales for the current quarter, which includes the critical December selling season.

"The holiday is setting up to be incredibly challenging for softline retailers specifically those that cater to a teen customer," SunTrust Robinson Humphrey analyst Pamela Quintiliano said.

She cited the six fewer shopping days this season, a strong electronics cycle with the launch of new videogame consoles and the new iPad, and the lack of must-have fashion for the expected weakness.

Young shoppers also increasingly prefer the trendier and more affordable merchandise offered by "fast fashion" chains such as Inditex's Zara and Forever 21, shying away from the logo-centric clothes at Abercrombie and rivals Aeropostale and American Eagle.

Lower levels of teen employment are also reducing shopping budgets for young shoppers.

"Our results for the third quarter reflect continued top-line challenges, with overall spending among younger consumers remaining weak," Abercrombie Chief Executive Mike Jeffries said in a statement.

The company said it expects adjusted earnings for the full year of $1.40-$1.50 per share, down from its forecast of $3.15-$3.25 per share in May.

Analysts on average were expecting a profit of $1.96 per share, according to Thomson Reuters.

Abercrombie warned of significant gross margin erosion in the fourth quarter as it discounts heavily to clears excess inventory.

Net sales fell 12 percent to $1.03 billion in the third quarter ended November 2, missing analysts' average estimates of $1.07 billion.

The retailer said it will incur pre-tax charges of about $90 million-$100 million in the quarter related to the restructuring of its Gilly Hicks intimate apparel brand. Launched in 2007, the brand has 23 stores in total, six of which are in the UK and one in Germany.

Abercrombie said it will close all of its standalone Gilly Hicks stores and offer the brand through its Hollister stores and online.

The company released its forecast ahead of a presentation to analysts on Wednesday.

Shares were down 5 percent at $36.10 after the bell. They had closed at $38.31 on the New York Stock Exchange on Tuesday.

The stock has lost a fifth of its value this year through Tuesday's close.

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