Abercrombie Slides After Forecasting Quarterly Loss

Abercrombie & Fitch Co. (ANF) declined the most in five months after the teen retailer forecast a loss for the first quarter, citing concern about the weak economy’s impact on sales.

The shares fell 4.5 percent to $46.86 at the close in New York, the biggest one-day loss since Sept. 21. Abercrombie, which has lost 2.3 percent this year, was the biggest decliner in the Standard & Poor’s 500 Index.

The retailer has been working to improve its fashion assortment and close underperforming U.S. stores while expanding overseas. Abercrombie said it anticipates a “slight” loss in earnings per share in the first quarter compared with a 25-cent loss last year, citing a tough economy and difficulty tied to cold-weather inventory. It also forecast full-year comparable sales that will be little changed from the previous 12 months.

Abercrombie was “very concerned around the macroeconomic situation coming into the first quarter,” Chief Executive Officer Michael Jeffries said on a conference call today, after the company reported fourth-quarter results. The retailer will “see a resumption of healthier sales” in the second quarter, he said.

For the fiscal year, New Albany, Ohio-based Abercrombie anticipates profit of about $3.35 to $3.45 a share, excluding the effect of share buybacks. Analysts project adjusted earnings per share for the year of $3.67.

Valuing Inventory

Fourth-quarter net income, calculated using a new system for valuing inventory, advanced to $157.2 million, or $1.95 a share, from a restated $45.8 million, or 52 cents, a year earlier, Abercrombie said today in a statement.

Under the previous method of accounting, fourth-quarter net income rose to $173.2 million, or $2.15 a share, from $19.6 million, or 22 cents, a year earlier.

Sales for the fourth quarter ended Feb. 2 rose 11 percent to $1.47 billion. The average estimate of analysts surveyed by Bloomberg was $1.49 billion. International sales rose 34 percent to $492.2 million and direct-to-consumer sales jumped 26 percent to $266.4 million.

Abercrombie changed its method of accounting for inventory in the quarter. Under the old method, the company valued inventory based on its weighted average cost and initial retail selling price, then recorded charges to the cost of goods sold when the selling price was reduced. In the new system, the company doesn’t reduce the value of inventory unless it expects to sell the merchandise below its original cost.

Comparable Sales

The company, which saw comparable sales decline 1 percent for the year through Feb. 2, has been making strides toward regaining shoppers and boosting profitability. Abercrombie has hired a consulting firm to help it reduce costs and is conducting its first global market research study to “better understand our customers’ perceptions of us, as well as our key competitors,” Jeffries said on today’s call.

Abercrombie, which has said it plans to close 180 U.S. locations through 2015, said today it is shuttering 40 to 50 stores domestically this year, while opening Abercrombie flagships in Seoul and Shanghai. The company said it will also open 20 international Hollister stores.

Store Openings

Activist investor Ralph Whitworth, who last year pressed Abercrombie to cut back on store openings overseas and reduce spending, sold his stake in the teen retailer during the fourth quarter.

Whitworth’s Relational Investors LLC, which held 5.1 percent of Abercrombie’s shares as of Sept. 30, no longer owns the stock, according to a regulatory filing on Feb. 14.

Whitworth had told the company it could be worth $50 a share if spending came in line with its rivals, a person familiar with the matter told Bloomberg News last year.

The retailer’s top two stakeholders are FMR LLC, the parent of Fidelity Investments, with 15 percent of shares, and Citadel Advisors LLC, with 5.9 percent, according to data compiled by Bloomberg.

The retailer also boosted its quarterly dividend by 14 percent to 20 cents a share, from 17.5 cents. It’s payable March 19 to shareholders of record as of March 4.

Abercrombie, which operates more than 800 namesake and Hollister stores, had added 2.3 percent this year through yesterday.

The retailer’s shares soared by 34 percent, the most since its initial public offering in 1996, on Nov. 14, when it boosted its full-year profit forecast and reported third-quarter results that beat analysts’ expectations. Abercrombie slid 1.8 percent last year and 15 percent in 2011.

To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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