NEW ALBANY, Ohio — Abercrombie & Fitch Co. said Wednesday its first-quarter net income shrank 88 percent because of higher costs and declining sales in established stores and in Europe. Shares sank 10 percent in morning trading.
For the quarter ended April 28, the New Albany, Ohio-based retailer earned $3 million, or 3 cents per share, down from $25.1 million, or 28 cents per share, a year ago. Analysts polled by FactSet expected a profit of 2 cents per share.
Revenue rose 10 percent to $921.2 million from $836.7 million, but fell short of average analysts' predictions of $951.1 million.
U.S. revenue rose 1 percent to $644.3 million, while international revenue jumped 42 percent to $277 million. Revenue for sales that went straight to shoppers, such as sales from the company's websites, rose 40 percent to $148.2 million.
But revenue at stores open at least a year fell 5 percent, with a 4 percent drop at the company's namesake stores, an 11 percent decline at abercrombie kids stores and a 5 percent drop at Hollister stores. The metric is a key measure of a retailer's health, because it excludes sales at stores open at least a year.
Abercrombie CEO Mike Jeffries said that European sales trends were "challenging" because of the ongoing debt crisis in the region and recession in several European countries.
Abercrombie CEO Mike Jeffries said that European sales trends were "challenging" because of the ongoing debt crisis in the region and recession in several European countries.
The company's costs also climbed, rising 18 percent to $344.9 million to make its clothes, 14 percent for store and distribution expenses and up 9 percent for marketing and general expenses.
Abercrombie said that based on weaker first-quarter sales, it expects 2012 revenue at stores open at least a year to fall by a mid-single digit percentage — a decline under 10 percent. Still, the company backed its full-year profit prediction of $3.50 to $3.75, saying that it expects to make up for lower revenue by being more profitable and posting lower expenses. Abercrombie said that it expects the higher costs for cotton that have dinged results recently are largely behind it, and it expects to grow earnings in the second half of the year
The company also predicts fewer shares outstanding, which give a lift to earnings per share. Abercrombie on Wednesday said it has increased the number of shares it can buy back by 10 million.
Analysts polled by FactSet expect a full-year profit of $3.57 per share for the year ending in January 2013.
Abercrombie shares dropped $4.54 to $40.86 immediately after the opening bell. The stock has ranged from $40.25 to $78.25 over the past 12 months.