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Abercrombie & Fitch Sees Q2 Profit Despite Sales Slippage

Going forward, the company expects to see continued material adverse impact as a result of the pandemic.

By David Moin on August 27, 2020

Abercrombie & Fitch Co., despite a sharp slide in business at stores due to COVID-19, reported a net profit of $5.46 million for the second quarter ended Aug. 1, compared to a loss of $31.1 million in the year-ago quarter.

Net income per diluted share improved to $0.09 ($0.23 on an adjusted basis) compared to a net loss per diluted share in last year’s quarter of $0.48, which reflected costs from flagship closings.

Net sales in the latest quarter came to $698.3 million and were down 17 percent from last year’s $841 million, reflecting the adverse impact of COVID-19 on store sales.

Digital sales rose 56 percent to $386 million, reflecting “robust” growth in every month of the quarter.

By division Hollister sales were down 15 percent to $429.2 million from $504.8 million in the year-ago period. Abercrombie sales dropped 20 percent to $269 million from $336.3 million in the year-ago period.

Operating income improved to $14 million ($22 million on an  adjusted basis)  compared to an operating loss last year of $39 million, which reflected $45 million of flagship store exit charges.

“We are listening, learning and evolving, and staying nimble in this unprecedented period of turmoil and uncertainty,” said chief executive officer Fran Horowitz.

“Since the start of the pandemic, our global teams have been tirelessly at work, rapidly pivoting in response to the changing environment due to COVID-19 and calls for social justice,” Horowitz added. “We have made many difficult decisions with a purpose of strengthening our company for near-term success and long-term growth.

“We ended the quarter with approximately $1.1 billion of liquidity, reflecting $187 million of operating cash flow generated in the second quarter. By managing to the tough current environment and our daily demand trends, we were able to grow our highly penetrated digital revenue base by 56 percent year-over-year to $386 million, expand our gross profit rate by 140 basis points and leverage operating expense, resulting in robust operating margin improvement.

“We are proud of our recent execution, although cognizant and humbled by the many unknowns we as individuals and as a company continue to face. Looking ahead, the physical and mental health and safety of our customers, associates and communities remains a top priority. We will continue to be vigilant, thoughtfully managing operations while leveraging our strong liquidity position to strategically invest in critical functions that support our future global growth opportunities.”

The company expects to continue to see material adverse impact from COVID-19. As a result, for the third quarter of fiscal 2020, net sales are projected to be down in the range of 15 to 20 percent compared to last year.

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