Abercrombie & Fitch Post 2Q Loss on Sales Tumble

Abercrombie Has Loss on Sales Slump, Ruehl Stores

By Allison Abell Schwartz

Aug. 14 (Bloomberg) -- Abercrombie & Fitch Co., the U.S. teen clothing retailer, reported a second-quarter loss on slumping sales and costs to close Ruehl stores. The shares rose on investor optimism results will improve in the second half.

The net loss was $26.7 million, or 30 cents a share, compared with a profit of $77.8 million, or 87 cents, a year earlier, the New Albany, Ohio-based company said today in a statement. Revenue dropped 23 percent to $648.5 million, in line with preliminary figures released last week.

Chief Executive Officer Michael Jeffries started to lower prices in the second quarter to compete with other retailers such as Aeropostale Inc. and American Eagle Outfitters Inc., which have used discounts to lure consumers on tight budgets. Pricing changes, inventory management and improved fashion should help results later this year and in 2010, said Richard Jaffe, an analyst at Stifel, Nicolaus & Co. in New York.

The second quarter showed “modest improvement,” Jaffe said in a research note today. Excluding some items, earnings were 4 cents a share, beating his estimate for a loss of 3 cents.

Marketing, general and administrative expenses declined 19 percent in the quarter to $88.7 million.

Sales at stores open at least a year dropped 30 percent in the three months ended Aug. 1, the company said last week.

The retailer said on June 17 it would close its 29 unprofitable Ruehl stores that carry clothing for 22- to 25-year olds after sales stagnated in the U.S. recession.

Abercrombie rose $1.29, or 3.9 percent, to $34.25 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 48 percent this year.

(SOURCE: Bloomberg.com)

May Same-Store Sales Roundup

Major Memorial Day sales and a jump in U.S. consumer confidence in May were not enough to fend off another month of soft retail same-store sales. U.S. same-store sales for the month fell 4.8% according to Thomson Reuter vs. their estimate of a 4.1% decrease.

A 14-yr high in consumer savings and a curb on spending, both due to unemployment concerns and a troubled housing market, have negatively impacted retail sales, particularly luxury retail. Discretionary spending, which drives the luxury sector, just isn't there. Instead, consumers are focusing more on necessities such as food, gas and affordable clothing:

Upscale chains posted some of the worst May sales at stores open at least a year, or same-store sales."The high end continues to struggle, those in the discretionary spend segment are really continuing to get clocked," said Ken Perkins, president of Retail Metrics. (Source: Reuters)

Here's the apparel retail May same-store sales roundup:

Macy's same-store sales for May were down 9.1%, coming just under analysts' estimates of a 9.3% decline. The company says that sales were consistent with management's expectations.

Comp. sales dropped 12% for Dillard's in May, above projected declines of 8% by wall street.

Limited Brands met analysts' estimates and company expectations, posting a 7% decline in same-store sales in May. Amie Preston, V.P. Investor Relations, says the company projects comp. sales decline in the high single digits for June.

It was another weak month for high-end/luxury apparel sector. Abercrombie & Fitch reported comp. sales fell 28% for May, which was higher than analysts' estimates of a 24.2% drop.

Nordstrom's May comp. sales slipped 13.1%, slightly above the 12.7% decrease analysts predicted. The company experienced strength in Women's Coats and Dresses, Individualist, Savvy and Narrative merchandise categories.

Saks continues to suffer, posting same-store sales that plummeted 26.6%, way above analysts' predictions of 14.2%. The positive impact of a clearance event shift from April to May was offset by the designer sale event shift from May to June. Both event shifts caused a negative impact on May comp. sales.

Neiman Marcus May same-store sales declines 23.3%. Weakness was experienced across all geographies and merchandise categories.

April Same-Store Sales Round-Up

As expected, retailers benefited from the late Easter holiday, posting April same-store sales that were better than expected, as well as positive outlooks for earnings. However, overall comp. sales for the apparel sector were soft, indicating that consumer confidence is still low.

Analysts expected overall same-store sales to fall 0.2%, however Thomas Reuters reports overall same-stores sales increased 1.2%. Sans Walmart's numbers, sales fell 2.7% however that still tops the 3.4% drop analysts expected.

Still some are not impressed.

"It's hard to really ... be terribly excited," said Michael Niemira, chief economist with the International Council of Shopping Centers (ICSC), since the results only demonstrate a move from "extreme weakness" to "moderate weakness. That progress toward improvement will continue."

The market's response was a dip in trading with the S&P Retail Index down 2%.

Here's the apparel retail round-up:

Walmart continues to prosper during these challenging economic times, posting a April comp. sales increase of 5% beating the 2.9% increase analysts' predicted. The company credits the Easter holiday shift as well as increased strength in seasonal and discretionary purchases. Walmart announced that they will no longer provide monthly comp. sales results, insteading opting to provide comp. sales results on a 13-week basis to be released during their scheduled quarterly earnings calls.

Macy's Inc.'s comp sales were down 9.1%, which were consistent with the company's expectations. The company forecasts a first-quarter loss of 19 cents to 21 cents per share, excluding restructuring costs. This beats Macy's earlier projections and Wall Street estimates of a 27 cents per share loss.

April same-store sales for Limited Brands fell 6%, slightly more than the 5.9% decline that was estimated.

High-end apparel retailers continues to struggle the most. April same-store sales for Abercrombie & Fitch were off 22% for April, which was under the 27.3% drop analysts predicted.

Nordstrom's April same-store sales dropped 10.8%, beating analysts' estimates of a 12.3% decline. The shift of the Easter holiday from March to April favorably affected sales, however the shift of the Nordstrom Rewards event for Nordstrom cardholders from late April to March offset any gains. The strongest performing merchandise categories were women's coats & dresses and junior women's apparel.

Saks Fifth Avenue continues to struggle, posting April comp. sales declines of 32%. The company blames the shift of a spring season clearance event from April to May as having a negative affect on sales results. However, management projects this event shift will positively impact sales in its second fiscal quarter.

Neiman Marcus April same-store sales fell 24.6% in its Specialty Retail Stores segment, which included Neiman Marcus stores and Bergdorf Goodman. Weakness was experiences across all geographies and merchandise categories.

A Sparkle of Light in March Same-Store Sales Reports

The apparel retail sector has reason to be a little hopeful today. Although retail same-store sales dropped in March, the declines were less than expected signaling an upturn in consumer confidence.

Reuters reports that more than half of the retailers that posted March sales, topped Wall Street estimates. Thomas Reuters' same-store sales index reports overall sales were down 1.8%, thanks to lower-than-expected sales growth from Wal-Mart. However, sans Wal-Mart's figures, sales fell 5%, slightly beating the 5.2% decline analysts predicted.

"The numbers are still soft, but given the deluge of negative news we have seen in the retail space over the last several months, it's got to be somewhat encouraging," said Ken Perkins, president of Retail Metrics Inc. "It looks like there is a little bit of an uptick, some pent-up demand ... for some discretionary spending." (Source: Reuters)

Investors responded to the encouraging news, pushing the Standard & Poor Retail Index up 4.6%.

The Easter shift from March to April negatively affected March sales results:

"The overall tone for March was actually stronger than the reported sales performance," said Michael P. Niemira, ICSC chief economist and director of research. "Sales performance was dampened due to several factors, two of which were calendar related; the first being a calendar-month shift that caused there to be one less Saturday in March compared with last year and the second being that Easter falls three weeks later this year, on April 12, as opposed to March 23 last year," said Niemira. "These shifts created an unfavorable month-over-month comparison with March of 2008. If we adjust for the calendar shifts sales for March were stronger than reported, in fact, up about 1 percent," Niemira added. (Source: ICSC)

Abercrombie & Fitch was the biggest loser with March same-store sales falling 34%, due to the company's continued resistance to discounting their merchandise in order to protect their brand's image. Comp. sales were weakest in week 3 and and stronger in weeks 4 and 5 reflecting the Easter shift. Weeks 4 and 5 were positively impacted by Spring clearance event. Across all brands, jeans, fragrance and fleece were the strongest categories. Comparable sales were down across all U.S. regions and Canada.

Macy's Inc. reported a 9.2% declined in same-store sales for the month of March, slightly beating Wall St. predictions of a 9.3% decline. Online sales (which include macys.com and bloomingdales.com and are included in same-store sales results) had another good month with a sales increase of 17.9% in March and 17.1% year-to-date. All figures were in line with management's expectations. Due to the Easter holiday falling in April instead of March, the company advises that the March-April period should be viewed together.

Limited Brands, Inc. reported March same-store sales decreased 9%, beating the company's expectations of a "low double digit decline" as well as analysts' estimates of a 12% decrease. The company projects mid-single digit same-store sales declines for April.

However, the struggle continues for the luxury sector.

Neiman Marcus was the worst performer in the sector, reporting same-store sales drop of 29.9% for March. The company said it experienced weakness across all regions and merchandise categories.

March Same-store sales fell 23.6% for Saks Fifth Avenue, missing Wall St. estimates of a 20.3% decline. The luxury chain experienced weakness across all merchandise categories, while Saks Direct and OFF 5TH showed strength.

Nordstrom beat analysts' estimates of a 16% decline, posting a same-store sales drop of 13.5% in March. The company reports that while the Nordstrom Rewards triple point event for Nordstrom cardholders had a favorable affect on sales, the positive results were offset by the shift in the Easter holiday from March to April. Rob Campbell, treasurer and vice-president of investor relations, said that cosmetics and junior women apparel were their strongest categories.

Tiffany Stock Surges Despite 4Q Loss

Photo: Reuters/Fred Prouser

Tiffany & Co. shares rose 15.52%, or $3.14, to close at $23.37 after the company reported fourth-quarter profit that beat Wall St. estimates. This was the company's biggest gain in five months.

Excluding one-time charges, such as staffing reductions, earnings per share (EPS) was $0.85, beating average analysts' estimates of 78 cents per share according to Reuters Estimates.

Taking aggressive steps to lower costs was a contributing factor to the company beating expectations. Tiffany announced that it will close all 16 Iridesse pearl jewelry stores, which have operated at a loss since opening in 2004. They have offered early-retirement packages to 800 U.S. of its employees, with 600 accepting the package. The company says both actions will reduce it's workforce by 10%, creating a savings of $60 million for the year. In other cost saving measures, the retailer has suspended its share repurchase program, and lowered management incentive compensation.

However, the company is quick to say that the outlook is dim.

"We have not yet seen signs of an upturn in our business with worldwide sales in the quarter-to-date declining more than 20%, which is in-line with our expectation", says Michael J. Kowalski, chairman and chief executive officer.

Tiffany forecasts a decline in worldwide sales of 11%, and earnings of $1.50 - $1.60 per share for the fiscal year ending in January 2010.

For the fiscal fourth-quarter, which ended January 31, net income dropped a little over 75% to $31.1 million, or $0.25 per share compared to the previous year's $127.4 million, or $0.96 per share. Earnings for the full year were down 32%, $220.0 million, or $1.74 per share, vs. $323.5 million, or $2.34 per share from the previous year. Sales were in line with company expectations.

Fourth-quarter worldwide net sales plummeted 20% to $841.2 million, with sales declines in the Americas region having the biggest impact.

Sales in the Americas took the biggest hit out of the company's three regions. Fourth-quarter sales of $458.9 million were down 29%, and fiscal year sales were down 10% at $1.59 billion. U.S. same-store sales dropped 33% in the fourth quarter and 16% for the year. Despite being a major tourist attraction, sales at the New York flagship store were down 34% and 9%.

In the U.S., there were declines in every price range, however the declines were "somewhat smaller" in sales below $500 and larger in sales about $50,000, said Mark Aron, Tiffany's vice-president of investor relations.

In the Asia-Pacific region, sales declined 3% to $279.7 million in the fourth quarter, while sales increased 8% to $922 million for the year. In Europe, fourth quarter sales where down 2% at $95.3 million and up 17% to $284.6 million for the year.

Net inventories increased 17% to $1.6 billion due to lower than expect sales towards the end of the year, particularly the holiday season, the opening of new stores and an increase in raw material inventories.

Despite low sales, the company has no plans to follow the current trend of discounting prices that their competitors have embraced. "We did and will continue with our full price philosophy in order to maintain appropriate margins and very importantly to maintain the integrity of the Tiffany and Company brand", said Tiffany CFO, Jim Fernandez.

I agree with this strategy. Tiffany & Co. isn't just a company, it's a strong, iconic brand that people will always be willing to pay full price for. Everyone wants the "blue box".

Even though the luxury sector is going through turbulent times, people still want high quality clothing and jewelry that is timeless. In this morning's conference call, the company noted that they experienced "strong sales" of Tiffany Charms and their Atlas 1837 and Somerset Collections. The new Tiffany Metro and Tiffany Keys collections have also shown promise, according to Mr. Aron. What do all of these collections have in common? Understated, classic and timeless luxury. If they stick with promoting these lines, they just might beat expectations in the first quarter.

Apparel Sales Continue To Suffer Despite Overall Industry Increase

U.S. retailers reported their same-store sales for February and the results were better than expected.

Reports show overall retail industry same-store sales increased 0.3%, beating analysts' predictions of a decline of 1.3%, according to Thomson Reuters. The increase was due to Wal-Mart clobbering expectations by posting a 5.1% same-store sales increase, as well as retailers controlling inventory.

A few retailers beat Wall Street estimates by either posting gains, or posting declines that were less than expected. Aeropostale reported an 11% increase in same-store sales which was higher than the 6.9% increase analysts predicted. Gap Inc. said sales fell 12%, beating estimates of a15.4% decline. Limited Brands Inc., the parent company of Victoria's Secret, dropped 7% which was better than analysts' estimate of a 7.6% drop.

So, is this a sign that the apparel sector is beginning a turnaround? Not necessarily. Despite these bright spots, reports show that apparel was down 5.6% and department stores declined 9% compared to the previous year.

Macy's Inc. reported same-store sales down 8.5% for February, more than the 7.3% analysts predicted but within management's expectations. However, online sales -- which include macys.com and bloomingdales.com -- increased 16.2%.

Luxury retail continues to struggle the most as a result of consumers opting for food and necessities instead of discretionary items like high end clothing. The International Council of Shopping Centers reports February same-store sales for luxury stores dropped 19.2% compared to a 0.1% drop of all the chains it monitors.

Saks Inc. was the worst performer in the sector with a 26.8% drop in same-stores sales in February, experiencing weakness across all merchandise categories, particularly women's apparel. Eveningwear, fragrance, women's and men's accessories and their OFF 5TH stores showed relative strength for the month.

February same-store sales for Neiman Marcus tumbled 20.9% with weakness in across all regions and merchandise categories.

Nordstrom, Inc. reported February sales decline 15.4%, more than the 13.6% drop analysts predicted.

December Same-Stores Sales Results Bring The Pain To The Retail Industry

Well, the December same-store sales results of the nation's retailers are in and it ain't pretty.

Deep holiday discounts were not enough to save the apparel sector. Macy's, Inc. reported same-store sales down 4% for December, less than the 5.3% decline analysts projected.

"The holiday shopping season ended with strong sales in the fourth and fifth weeks of December after a slow start to the month and unfavorable weather conditions in the Northeast, Midwest and Pacific Northwest," said Terry J. Lundgren, Macy's, Inc. chairman, president and chief executive officer. "We went into the fourth quarter with an objective of reducing inventory levels to position us for 2009. We are pleased to have accomplished that objective with approximately 7.5 percent lower inventory on a comparable store basis at the end of December compared with last year."

Ironically, meeting that objective, via markdowns and sales, has caused the company to cut its earnings per share expectations for the fourth quarter ($0.90 to $1.00 per share vs. $1.10 to $1.30 per share) and fiscal '08 ($1.10 to $1.20 vs. $1.30 to $1.50). There are also plans to close 11 underperforming stores.

Luxury stores were hit the hardest, undoubtedly a reflection of the Wall St. layoffs and affluent consumers experiencing major losses in their investment portfolios.

Neiman Marcus, Inc. led the pack with a 27.5% drop in December same-store sales, experiencing losses across all merchandise categories.

December same-store sales for Saks, Inc. decreased 19.8%, almost twice as much as analysts predicted, with weakness in the women's apparel, outerwear, men's clothing and advanced sportswear, women's shoes, and handbags categories.

Coach, Inc., one of the few retailers that did not discount their merchandise, in an attempt to protect their "brand proposition", reported same-store sales for the quarter declined 13%. As a result, earnings expectations for the second fiscal quarter were lowered 3% to $0.67 per share.

Nordstrom, Inc. cited industry wide competitive markdowns as the reason for it not meeting earnings expectations of $0.35 to $0.45 per share.

The biggest surprise was Wal-Mart. The world's biggest retailer reported same-store sales increased 1.7%, but it didn't meet the 2.7% estimate, thus it was forced to cut earnings estimates to $0.94 per share, down from projected $1.07 per share.

Things will probably get worse for retail. Thanks to some retailers not offering discounts, they have an abundance of inventory that needs to be cleared out before the spring shipments arrive. In order to get rid of inventory, they'll be forced to discount which cuts into their bottom line. Combine that with January and February historically being slow because consumers are waiting for Spring collections.

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