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Abercrombie’s Q4 Beats on Profits and Sales as Transformation Gains Traction

Abercrombie & Fitch Co. had a very good fourth quarter, and investors sent shares rising in pre-market trading Wednesday after the specialty retailer bested Wall Street’s estimates and provided an upbeat guidance for fiscal 2019.

In a Nutshell: Fran Horowitz, chief executive officer, said the company posted its “sixth consecutive quarter and second consecutive full year of positive comparable sales while exceeding $1 billion in annual digital sales.” While the company delivered on the top-line, Horowitz said the teen retailer also “drove gross profit rate improvement and operating expense leverage resulting in 100 basis points of adjusted EBIT (earnings before interest and taxes) margin expansion and a 77 percent improvement in adjusted net income for the full year.”

The company expects to have 85 new store experiences for fiscal 2019. This will include new store prototypes, remodeled stores and “right-sized” locations. The company will also close up to 40 doors. Over the past few years, Abercrombie has been closing locations after electing not to renew leases as they come to an end. Last year, the company delivered 67 new store experiences and shuttered 29 stores in the U.S. It operates doors under the Abercrombie & Fitch, Hollister and Abercrombie nameplates.

Sales: Net sales for the quarter ended Feb. 2 fell 3.1 percent to $1.16 billion from $1.19 billion. Part of the decline was due to the calendar shift for the quarter versus the extra week in 2017. Comparable sales rose 3 percent on top of the 9 percent gain in the same 2017 quarter. The company said the gross profit rate was 59.1 percent, up 70 basis points from a year ago. By business segment, Hollister sales rose 1 percent to $713 million, or 61.7 percent of the company’s total net sales, with comps gaining 6 percent. Abercrombie sales were down 9 percent from a year ago to $443 million, or 38.3 percent of total net sales, while comps fell 2 percent for the quarter.

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Earnings: Net income jumped 30.6 percent to $96.9 million, or $1.42 a diluted share, from $74.2 million, or $1.05, in the year-ago quarter. On an adjusted basis, diluted earnings per share was $1.35.

Wall Street was expecting adjusted diluted EPS of $1.15 on sales of $1.13 billion.

For fiscal 2019, the company guided net sales up in the range of 2 percent to 4 percent, with comp sales up low-single digits. For the first quarter, the company forecasted net sales to be flat to last year, with comp sales in the range of flat to up 2 percent.

Investors reacted to the positive quarterly results and upbeat fiscal 2019 guidance by sending shares up 10.2 percent to $23.50 Wednesday morning before the company’s scheduled 8:30 a.m. conference call to Wall Street analysts.

CEO’s Take: “We continue to keep the customer at the center of everything we do and are excited about the future of our brands,” Horowitz said. “Our transformation initiatives are gaining traction and keeping us on track to deliver our previously disclosed fiscal 2020 targets.”