A&F Issues Business Update, Discusses Restructuring Plan for Gilly Hicks Brand; Sees Q3 Adj. EPS at Higher End of Range

Abercrombie & Fitch Co.

today reported on the Company's performance for the quarter ended November 2, 2013 and provided an updated full year outlook. Net sales for the thirteen weeks ended November 2, 2013 decreased 12% to $1.033 billion from $1.170 billion for the thirteen weeks ended October 27, 2012. Total comparable sales for the quarter, including direct-to-consumer sales, decreased 14% with comparable U.S. sales decreasing 14% and comparable international sales decreasing 15%. Total direct-to-consumer comparable sales increased 11% for the quarter. Third quarter comparable sales are compared to the thirteen-week period ended November 3, 2012. For the third quarter, the Company expects to incur pre-tax charges in the aggregate of approximately $90 million - $100 million related to its restructuring plans for the Gilly Hicks brand (as discussed below), non-cash impairment charges related to other stores, and charges related to the Company's profit improvement initiative. Excluding these charges, the Company expects to report adjusted non-GAAP earnings per diluted share at the higher end of prior non-GAAP guidance of $0.40 to $0.45. This expectation now reflects lower sales and gross margin rate than anticipated offset by expense and other favorabilities. Pending finalization of the material charges mentioned above, the comparable U.S. GAAP earnings per share figure is not available at this time, but will be available when earnings are released on November 21, 2013. Based on a projected low double digit decrease in comparable sales for the fourth quarter, the Company expects full year adjusted non-GAAP earnings per diluted share to be in the range of $1.40 to $1.50. This projection also assumes significant gross margin rate erosion in the fourth quarter as the Company clears through excess inventory. The guidance for the full year does not include charges related to the Company's restructuring plans for the Gilly Hicks brand, other impairment and store closure charges, charges related to the implementation of the Company's profit improvement initiative, or the effect of any additional share repurchases. Mike Jeffries, Chief Executive Officer and Chairman of the Board of Abercrombie & Fitch Co., said: "Our results for the third quarter reflect continued top-line challenges, with overall spending among younger consumers remaining weak. Until we have seen a clear trend improvement, we are continuing to take a cautious approach into the fourth quarter and are working to end the year with appropriate levels of fall carryover inventory. During the quarter, we completed our long-term strategic review, and believe that we now have a clear roadmap for sustainable growth in sales, profitability and return on invested capital. We look forward to sharing the results of our review in our analyst meeting." The Company will host an analyst meeting to discuss the results of its long-term strategic review on Wednesday, November 6, 2013.  A live webcast of the analyst meeting will also be accessible under the "Investors" section of the Company's website at www.abercrombie.com at 8:30 AM, Eastern Time. Gilly Hicks Update The Company also announced that it plans to close all of its stand-alone Gilly Hicks stores. The Company expects to substantially complete the closures by the end of the first quarter of Fiscal 2014. Store closures in Europe are subject to applicable notice and consultation provisions. The Company will continue to offer Gilly Hicks branded intimate apparel through its Hollister stores and direct-to-consumer business. Mike Jeffries said: "In connection with our long-term strategic review, we have decided to focus the future development of the Gilly Hicks brand through Hollister stores and direct-to-consumer channels. This decision reflects the successful pilot of selling Gilly Hicks branded intimates in Hollister stores. As a result, we have made the determination to close our stand-alone Gilly Hicks stores. We believe it is critical to focus our efforts and resources where we have the greatest opportunities to drive profitable growth for our brands." The Company estimates that it will incur pre-tax charges of approximately $90 million, including approximately $40 million of non-cash impairment charges and approximately $50 million of lease-related, severance and other charges. The Company expects the charges to be substantially recognized in the third and fourth quarters of Fiscal 2013 and the first quarter of Fiscal 2014. The Company also estimates that the net cash outflow associated with the Gilly Hicks store closures, prior to any associated tax benefits, will be approximately $55 million. These estimates are based on a number of significant assumptions and could change materially. Excluding the above-referenced charges, the Company anticipates that its Gilly Hicks operations will incur a pre-tax loss of approximately $30 million in Fiscal 2013. As a result of the store closures and reductions in overhead expenses, the Company expects the brand to operate on approximately a break-even basis in Fiscal 2014.