ANF Abercrombie and Fitch Co

New Albany, Ohio, August 30, 2016:  Abercrombie & Fitch Co. (NYSE: ANF) today reported a GAAP net loss per diluted share of $0.19 for the second quarter ended July 30, 2016, compared to a GAAP net loss per diluted share of $0.01 for the second quarter last year. Excluding certain items, the company reported an adjusted non-GAAP net loss per diluted share of $0.25 for the second quarter, compared to adjusted non-GAAP net income per diluted share of $0.12 last year. The results for the quarter reflect an adverse impact related to year-over-year changes in foreign currency exchange rates of approximately $0.08 per diluted share.

A description of the use of non-GAAP financial measures and a schedule reconciling GAAP financial measures to adjusted non-GAAP financial measures accompanies this release.

Arthur Martinez, Executive Chairman, said:

"Our results for the quarter were largely in line with the expectations we set on last quarter's earnings call. Flagship and tourist locations continued to account for the vast majority of the comparable sales decline as traffic remained a significant headwind. We were encouraged, however, by strong growth in the direct-to-consumer business, both domestically and internationally, and by a comparable sales recovery in the Hollister European business, including in the U.K. In addition, conversion trends were positive in both channels, across brand and geography. Overall, we remained disciplined as gross margin rate was substantially maintained on a constant currency basis and expense and inventory were tightly controlled.

This quarter we began to roll out programs that reflect our new brand positions for both Abercrombie and Hollister. We look forward to strengthening our brands as we express these positionings across all customer touch points.

As we look to the rest of the year, we now expect flagship and tourist locations will continue to weigh on the business. Recognizing we are in a challenging environment, we are confident, however, that we are focusing on the right priorities and we expect to see traction in our business as we introduce new product and invest in marketing to drive awareness and relevance for our brands."

Second Quarter Sales Results

Net sales for the second quarter of $783.2 million were down 4% versus last year, with comparable sales for the second quarter down 4%.

⁽¹⁾ Comparable sales are calculated on a constant currency basis.
⁽²⁾ Abercrombie includes the Abercrombie & Fitch and abercrombie kids brands.

By brand, net sales for the second quarter decreased 5% to $363.1 million for Abercrombie and decreased 4% to $420.1 million for Hollister versus last year.

By geography, net sales for the second quarter decreased 7% to $478.8 million in the U.S. and were approximately flat at $304.4 million in international markets versus last year.

Direct-to-consumer sales grew to approximately 23% of total company net sales for the second quarter, compared to approximately 21% of total company net sales last year.

Additional Second Quarter Results Commentary

The gross profit rate for the second quarter was 60.9%, 140 basis points lower than last year. Excluding certain items last year, the gross profit rate decreased 20 basis points on a constant currency basis, primarily due to higher average unit costs, partially offset by higher average unit retails.

Stores and distribution expense for the second quarter was $382.9 million, down from $389.2 million last year.  Excluding certain items last year, stores and distribution expense decreased $4.9 million, primarily due to the realization of savings on lower sales and expense reduction efforts, partially offset by higher direct-to-consumer expense.

Marketing, general and administrative expense for the second quarter was $111.7 million, down from $119.8 million last year. Excluding certain items last year, marketing, general and administrative expense increased $7.6 million, primarily due to higher marketing and other expenses.

Asset impairment charges of $6.4 million for the second quarter were excluded from adjusted results.

Net other operating income for the second quarter was $13.1 million, compared to net other operating income of $1.1 million last year. Excluding certain items in the second quarter, net other operating income decreased $0.3 million.

Operating loss for the second quarter was $10.8 million, compared to operating income of $2.0 million last year. Excluding certain items, adjusted non-GAAP operating loss for the second quarter was $16.7 million, compared to adjusted non-GAAP operating income of $16.5 million last year.

The effective tax rate for the second quarter was 23%. Excluding certain items, the adjusted non-GAAP effective tax rate for the second quarter was 27%.

Net loss attributable to Abercrombie & Fitch Co. for the second quarter was $13.1 million compared to $0.8 million last year. Excluding certain items, adjusted non-GAAP net loss attributable to Abercrombie & Fitch Co. for the second quarter was $16.8 million, compared to adjusted non-GAAP net income attributable to Abercrombie & Fitch Co. of $8.6 million last year.

Other Developments

As previously announced, on August 17, 2016 the Board of Directors declared a quarterly cash dividend of $0.20 per share on the Class A Common Stock of Abercrombie & Fitch Co., payable on September 12, 2016 to stockholders of record at the close of business on September 2, 2016.

Fiscal 2016 Outlook

For fiscal 2016, the company now expects:

• Comparable sales to remain challenging through the second half of the year, with a disproportionate effect from flagship and tourist locations
   
• Adverse effects from foreign currency on sales of approximately $25 million and on operating income of approximately $20 million, with the greatest impact in the third quarter
   
• A gross margin rate flat to last year's adjusted non-GAAP rate of 61.9%, but down in the third quarter due to adverse effects from foreign currency
   
• Operating expense dollars to be down slightly to last year's adjusted non-GAAP operating expense, with investments in marketing, skewed towards the third quarter, offset by savings from expense reduction efforts
   
• An effective tax rate in the mid-to-upper 30s
   
• Net income attributable to noncontrolling interests of approximately $5 million
  

• A weighted average diluted share count of approximately 68 million shares, excluding the effect of potential share buybacks

The company expects capital expenditures to be at the low end of the range of $150 million to $175 million for the full year.  The company plans to open approximately 15 new stores in fiscal 2016, including approximately 10 in international markets, primarily China, and approximately five in the U.S.  The company plans to open six new outlet stores, primarily in the U.S.  In addition, the company anticipates closing up to 60 stores in the U.S. during the fiscal year through natural lease expirations.

Excluded from the company's outlook are the effects of certain potential items, including, but not limited to, insurance recoveries, impairments and other items.

An investor presentation of second quarter results will be available in the "Investors" section of the company's website at www.abercrombie.com at approximately 8:00 AM, Eastern Daylight Time, today.

About Abercrombie & Fitch Co.

Abercrombie & Fitch Co. is a leading global specialty retailer of high-quality, casual apparel for Men, Women and kids with an active, youthful lifestyle under its Abercrombie & Fitch, abercrombie kids and Hollister Co. brands.  At the end of the second quarter, the company operated 744 stores in the United States and 182 stores across Canada, Europe, Asia and the Middle East. The company also operates e-commerce websites at www.abercrombie.com, www.abercrombiekids.com and www.hollisterco.com.

Today at 8:30 AM, Eastern Daylight Time, the company will conduct a conference call.  Management will discuss the company's performance and its plans for the future and will accept questions from participants. To listen to the conference call, dial (888) 438-5493 and ask for the Abercrombie & Fitch Quarterly Call or go to www.abercrombie.com.  The international call-in number is (719) 325-2309.  This call will be recorded and made available by dialing the replay number (888) 203-1112 or the international number (719) 457-0820 followed by the conference ID number 9489764 or through www.abercrombie.com.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

A&F cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Press Release or made by management or spokespeople of A&F involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond the company's control. Words such as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," and similar expressions may identify forward-looking statements. Except as may be required by applicable law, we assume no obligation to publicly update or revise our forward-looking statements. The following factors, in addition to those included in the disclosure under the heading "FORWARD-LOOKING STATEMENTS AND RISK FACTORS" in "ITEM 1A. RISK FACTORS" of A&F's Annual Report on Form 10-K for the fiscal year ended January 30, 2016, in some cases have affected, and in the future could affect, the company's financial performance and could cause actual results for Fiscal 2016 and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this Press Release or otherwise made by management: changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits, could have a material adverse effect on our business, results of operations and liquidity; our inability to anticipate customer demand and changing fashion trends and to manage our inventory commensurately could adversely impact our sales levels and profitability; a significant component of our growth strategy is international expansion, which requires significant capital investment, the success of which is dependent on a number of factors that could affect the profitability of our international operations; direct-to-consumer sales channels are a significant component of our growth strategy, and the failure to successfully develop our position in these channels could have an adverse impact on our results of operations; our market share may be negatively impacted by increasing competition and pricing pressures from companies with brands or merchandise competitive with ours; we have currently suspended our search for a new Chief Executive Officer and the continuance of our interim governance structure may create uncertainty; our inability to successfully implement our strategic plans could have a negative impact on our growth and profitability; our failure to protect our reputation could have a material adverse effect on our brands; our business could suffer if our information technology systems are disrupted or cease to operate effectively; we may be exposed to risks and costs associated with cyber-attacks, credit card fraud and identity theft that would cause us to incur unexpected expenses and reputation loss; fluctuations in foreign currency exchange rates could adversely impact our financial condition and results of operations; fluctuations in the cost, availability and quality of raw materials, labor and transportation, could cause manufacturing delays and increase our costs; we depend upon independent third parties for the manufacture and delivery of all our merchandise, and a disruption of the manufacture or delivery of our merchandise could result in lost sales and could increase our costs; our ability to attract customers to our stores depends, in part, on the success of the shopping malls or area attractions that our stores are located in or around; we rely on the experience and skills of our senior executive officers, the loss of whom could have a material adverse effect on our business; our reliance on two distribution centers domestically and third-party distribution centers internationally makes us susceptible to disruptions or adverse conditions affecting our distribution centers; our litigation exposure could have a material adverse effect on our financial condition and results of operations; our inability or failure to adequately protect our trademarks could have a negative impact on our brand image and limit our ability to penetrate new markets; fluctuations in our tax obligations and effective tax rate may result in volatility in our operating results; extreme weather conditions and the seasonal nature of our business may cause net sales to fluctuate and negatively impact our results of operations; our facilities, systems and stores, as well as the facilities and systems of our vendors and manufacturers, are vulnerable to natural disasters, pandemic disease and other unexpected events, any of which could result in an interruption to our business and adversely affect our operating results; the impact of war or acts of terrorism could have a material adverse effect on our operating results and financial condition; changes in the regulatory or compliance landscape could adversely affect our business and results of operations; our Asset-Based Revolving Credit Agreement and our Term Loan Agreement include restrictive covenants that limit our flexibility in operating our business; and, compliance with changing regulations and standards for accounting, corporate governance and public disclosure could adversely affect our business, results of operations and reported financial results.

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