Abercrombie & Fitch Co. saids its first quarter results, ended 2nd May, 2020, has strong cash flow management and month-over-month acceleration in digital sales growth, partially offsetting sales decline from temporary store closures.
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Fran Horowitz, Chief Executive Officer, said “I am proud of our global teams’ and partners’ perseverance and swift call to action during this unprecedented period. We entered this fiscal year in a strong financial position, and in light of COVID-19 took immediate, strategic and aggressive steps to balance our short and longer-term liquidity needs to best position the business for our key stakeholders.”
“With the well-being of our associates, customers and communities a top priority, and to help limit the spread of COVID-19, in mid-March we temporarily closed all stores across brands outside of the APAC region. Although our physical stores were closed, we continued to engage with our customer base through social media, influencer networks, apps, online events, websites and email. Our distribution centers remained operational, enabling us to fulfill digital customer demand globally, partially mitigating lost sales from temporary store closures. For the first quarter, we registered year-over-year global digital sales growth of approximately 25% with acceleration in the mid-March through April period and further acceleration in May,” continued Fran.
“Today, roughly half of our global store base is open. With stores reopening in the U.S. and the EMEA regions, we have experienced sales productivity for reopened stores of approximately 80% and 60%, respectively, as compared to last year’s levels. We look forward to continuing to serve our customers across channels, and remain committed to, and confident in, our long-term vision including the global opportunities available to us,” added Fran.
The results for first quarter ended 2nd May, 2020 show that the gross profit rate was 54.4%, down 610 basis points on a reported basis, reflecting approximately 300 basis points of adverse impact from charges to reduce the carrying value of inventory this year, primarily as a result of the continued effects of COVID-19, approximately 30 basis points of adverse impact from changes in foreign currency exchange rates and the remainder of the decline primarily due to strategic and targeted promotions in response to the current retail environment.
Operating expense, excluding other operating income, of $473 million and $430 million, on a reported and adjusted non-GAAP basis, respectively. Operating expense as a percentage of sales increased to 97.4% and 88.6% on a reported and adjusted non-GAAP basis, respectively, from 64.3% last year, primarily due to deleverage associated with lost sales from temporary store closures in response to COVID-19.
Stores and distribution expense of $322 million decreased 10%, primarily driven by reductions in payroll and store occupancy expense from temporary store closures in response to COVID-19, partially offset by increased shipping and handling expense related to digital sales.
Marketing, general and administrative expense of $108 million decreased 3%, primarily driven by reductions in certain expenses related to the company’s transformation initiatives and a decrease in marketing expense.
Asset impairment charges of $43 million, adversely impacted GAAP net loss per diluted share by $0.62, net of tax effect, and are excluded from adjusted non-GAAP results. These charges are principally the result of the impact of COVID-19 on store cash flows and compares to $2 million of asset impairment charges last year.
Operating loss of $209 million and $166 million on a reported and adjusted non-GAAP basis, respectively. Operating loss last year was $27 million on both a reported and an adjusted non-GAAP basis. Foreign currency exchange rates adversely impacted year-over-year results by $3 million.
Effective tax rate of negative 14.8%. The significant adverse impacts of COVID-19 resulted in the establishment of additional valuation allowances in certain jurisdictions during the first quarter of fiscal 2020, ultimately giving rise to income tax expense on a pre-tax loss. Income tax expense for the first quarter reflects adverse tax impacts of $91 million related to valuation allowances on deferred tax assets and other tax charges, adversely impacting results by $1.45 per diluted share.
Net loss per diluted share of $3.90 and $3.29 on a reported and adjusted non-GAAP basis, respectively, reflects adverse tax impacts of $91 million, or $1.45 per diluted share, related to valuation allowances on deferred tax assets and other tax charges. Net loss per diluted share last year was $0.29 on both a reported and an adjusted non-GAAP basis and foreign currency exchange rates adversely impacted year-over-year results by $0.03.
As of 2nd May, 2020 the company had liquidity of $763 million as compared to $914 million as of 1st February, 2020 and $832 million as of 4th May, 2019.