This summary is based on the fourth quarter fiscal 2006 earnings call conducted by Abercrombie & Fitch Co. (ANF: chart) on February 21, 2007.
Chairman and CEO: Mike Jeffries
Chief Financial Officer: Mike Kramer
Director of Investor Relation: Tom Lennox
Key Investors Issues
- Fourth quarter net income per diluted share grew 19% to $2.14 versus $1.80 last year.
- Quarterly revenue grew 18% over last year to $1.139 billion.
- In Q4, the company opened three Abercrombie & Fitch stores, eight Abercrombie stores, 21 Hollister stores and four RUEHL stores.
Fourth Quarter Fiscal 2006 Financial Highlights
The net sales for the 14 weeks ended February 3, 2007 increased 18% to $1.139 billion from $961.4 million for the 13 weeks ended January 28th, 2006.
The fiscal 2006 retail calendar includes a 53rd week. Fourth quarter comps are compared to the 14 week period ended February 4th, 2006. Total company comparable store sales declined 3% in the fourth quarter. By region, same store sales were strongest in the New York and Mid-Atlantic region and weakest in the west region.
The gross profit rate was 66.4%, 10 basis points lower compared to last year.
The decline in gross profit rate was primarily due to higher strength and a slightly higher markdown rate versus last year.
The firm ended the fourth quarter with inventories up 6% per gross square foot at cost versus last year.
This was in-line with the company’s prior guidance. When the firm estimated that yearend inventory would be flat to slightly positive on a per-square-foot at cost basis. Going forward, the firm expects to end the first quarter of 2007 with inventory flat to slightly positive on a per-square-foot at cost basis, compared to the first quarter of 2006.
Stores and distribution expense for the quarter, as a percentage of sales, increased 20 basis points to 30.7% versus 30.5% last year.
The increase in rate versus last year resulted from increased distribution center expenses, primarily attributed to the startup of the firm’s second DC and direct-to-consumer expenses, which increased due to higher internet sales as a percentage of total sales. These increases were partially offset by decreased store expenses as a percentage of sales.
Payroll was higher as a percentage of sales due primarily to management salary increases, minimum wage increases and additional floor coverage to address stores with shrink concerns. However, other variable expenses were tightly managed and allowed the firm to achieve overall leverage in this area.
For the fourth quarter, marketing, general and administrative expense increased 50 basis points, as a percentage of sales, to 8.9% from 8.4% last year.
The increase in rate versus last year resulted from an increase in home office payroll and consulting expenses as a percentage of sales. The increased expense in this area is driven by strategic investment in key areas like IT, planning, brand protection and sourcing.
Net income for the fourth quarter increased 20% to $198.2 million versus $164.6 million last year.
- Fourth quarter net income per diluted share increased 19% to $2.14 versus $1.80 last year.
- For the fourth quarter, operating income increased 15% to $308.8 million compared to $267.5 million last year.
The effective tax rate for the fourth quarter was 36.8% compared to 39% for the 2005 comparable period.
The decrease in the effective tax rate relates to an increase in tax-exempt income over the prior year comparable period, favorable settlements of certain tax audits and favorable changes in estimates of potential outcomes of certain state tax matters.
During the quarter, the company opened three Abercrombie & Fitch stores, eight Abercrombie stores, 21 Hollister stores and four RUEHL stores.
