Abercrombie & Fitch Company · NYSE:ANF
Abercrombie & Fitch — Q3 2019 Earnings Presentation
33 slides from Abercrombie & Fitch's earnings presentation, Nov 27, 2019
Slide 1: Investor Presentation: Third Quarter 2019
Investor Presentation: Third Quarter 2019
Slide 2: Table of Contents
TABLE OF CONTENTS Safe Harbor and Other Information 3 Introduction 4 Our Brands 5 Our Journey 6 Our Transformation Initiatives 7 Our Fiscal 2020 Target 8 CEO Commentary 9 Income Statement 10 Sales Summary 11 Operating Expense 12 Income Statement Summary 13 Adjusted Non-GAAP Income Statement Summary
Slide 3: Safe Harbor Statement
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 presentation or made by management or spokespeople of A&F involve risk
Slide 4: Introduction
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Slide 5: Our Brands Allow Customers Around the World to Express Their Individuality and Style
OUR BRANDS ALLOW CUSTOMERS AROUND THE WORLD TO EXPRESS THEIR INDIVIDUALITY AND STYLE HOLLISTER ALSO CARRIES 'GILLY HICKS BY HOLLISTER' WHICH OFFERS INTIMATES, LOUNGEWEAR AND SLEEPWEAR. Hollister Abercrombie & Fitch abercrombie kids The quintessential retail brand of the global teen consumer, Hollist
Slide 6: Our Journey
OUR JOURNEY FISCAL 2019 IS THE SECOND YEAR OF OUR 'GROWING WHILE TRANSFORMING' PHASE PHASE 1 PHASE 2 PHASE 3 STABILIZING WHILE TRANSFORMING GROWING WHILE TRANSFORMING ACCELERATING GROWTH • BUILT THE FOUNDATION • COMPARABLE SALES GROWTH • EXPAND GLOBALLY • RETURNED TO GROWTH • GROSS PROFIT RATE EXPAN
Slide 7: Our Transformation Initiatives
OUR TRANSFORMATION INITIATIVES OPTIMIZING OUR GLOBAL STORE NETWORK • RIGHTSIZING STORE FLEET AND ADAPTING TO THE EVOLVING ROLE OF THE STORE AS CUSTOMERS' SHOPPING PREFERENCES SHIFT ENHANCING DIGITAL AND OMNI-CHANNEL CAPABILITIES • CREATING BEST-IN-CLASS CUSTOMER EXPERIENCES WHILE GROWING PROFITABLY
Slide 8: Our Fiscal 2020 Target
OUR FISCAL 2020 TARGET AS PRESENTED DURING OUR INVESTOR DAY ON APRIL 25, 2018 A LOW SINGLE-DIGIT SALES CAGR OPERATING EXPENSE MODEST FROM POSITIVE COMPARABLE SALES LEVERAGE GROSS PROFIT RATE AND GLOBAL MARKET EXPANSION EXPANSION DOUBLE FISCAL 2017 ADJUSTED NON-GAAP OPERATING INCOME MARGIN OF 2.9% 8
Slide 9: Q3 CEO Commentary
Q3 CEO COMMENTARY “We achieved another quarter of constant currency revenue growth and positive U.S. comps across brands, while maintaining tight expense management. Continued U.S. momentum was offset by challenges across several of our key international markets as well as a complicated global opera
Slide 10: Income Statement
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Slide 11: Q3 Net Sales and Comparable Sales
Q3 NET SALES AND COMPARABLE SALES APPROXIMATELY FLAT TO LAST YEAR AND CONSTANT CURRENCY NET SALES INCREASED 1%* ABERCROMBIE 40.6% BRAND HOLLISTER ABERCROMBIE $515M $349M • 59.6% OF TOTAL NET SALES • 40.4% OF TOTAL NET SALES • NET SALES FLAT TO LAST YEAR • NET SALES UP 1% LAST YEAR • NEGATIVE COMPARA
Slide 12: Q3 Operating Expense
Q3 OPERATING EXPENSE GAAP % OF NET GAAP % OF NET (in thousands) 2019 SALES 2018 SALES Δ BPS (3) STORE OCCUPANCY (1) $150,794 17.5% $154,593 18.0% (50) ALL OTHER (2) 226,903 26.3% 217,266 25.2% 110 STORES AND DISTRIBUTION 377,697 43.7% 371,859 43.2% 50 MARKETING, GENERAL & ADMINISTRATIVE 114,075 13.2
Slide 13: Q3 Income Statement Summary
Q3 INCOME STATEMENT SUMMARY % OF NET % OF NET (in thousands) 2019 SALES 2018 SALES NET SALES $863,472 100.0% $861,194 100.0% GROSS PROFIT (1) 518,931 60.1% 527,819 61.3% OPERATING EXPENSE 504,667 58.4% 489,696 56.9% OTHER OPERATING INCOME, NET (215) 0.0% (1,557) (0.2)% OPERATING INCOME 14,479 1.7% 3
Slide 14: Q3 Adjusted Income Statement Summary
Q3 ADJUSTED INCOME STATEMENT SUMMARY* % OF NET % OF NET (in thousands) 2019 SALES 2018 SALES NET SALES $863,472 100.0% $861,194 100.0% GROSS PROFIT (1) 518,931 60.1% 527,819 61.3% OPERATING EXPENSE 494,199 57.2% 492,701 57.2% OTHER OPERATING INCOME, NET (215) 0.0% (1,557) (0.2)% OPERATING INCOME 24,
Slide 15: Capital Allocation
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Slide 16: Returned $102.5M to Shareholders Through Share Repurchases and Dividends
RETURNED $102.5M TO SHAREHOLDERS IN FY 2019 THROUGH SHARE REPURCHASES AND DIVIDENDS* SHARE REPURCHASES (1) (in thousands, except NUMBER OF AVERAGE for average cost) SHARES COST COST DIVIDENDS TOTAL Q1 2019 — — — 13,246 13,246 Q2 2019 3,545 57,812 16.31 13,139 70,951 Q3 2019 412 5,730 13.92 12,574 18
Slide 17: Shares Outstanding
SHARES OUTSTANDING AT THE END OF THE THIRD QUARTER OF FISCAL 2019, THE COMPANY HAD APPROXIMATELY 4.6 MILLION SHARES REMAINING AVAILABLE FOR PURCHASE UNDER ITS PUBLICLY ANNOUNCED STOCK REPURCHASE AUTHORIZATIONS. REPURCHASED ~ 0.4M SHARES IN Q3 2019 69,000,000 68,195,273 67,758,163 68,000,000 67,347,9
Slide 18: Continued Focus on Free Cash Flow
CONTINUED FOCUS ON FREE CASH FLOW NET CASH PROVIDED CAPITAL FREE (in thousands) BY OPERATING ACTIVITIES EXPENDITURES CASH FLOW (1) FY 2014 $300,629 $174,624 $126,005 FY 2015 $315,755 $143,199 $172,556 FY 2016 $185,169 $140,844 $44,325 FY 2017 $287,658 $107,001 $180,657 FY 2018 $352,933 $152,393 $200
Slide 19: Balance Sheet Summary
BALANCE SHEET SUMMARY NOVEMBER 2, 2019 (1) FEBRUARY 2, 2019 NOVEMBER 3, 2018 CASH & EQUIVALENTS CASH AND EQUIVALENTS $410,775 $723,135 $520,523 $411M AS RECEIVABLES 92,736 73,112 87,714 COMPARED TO $521M LAST YEAR INVENTORIES 590,883 437,879 572,173 OTHER CURRENT ASSETS 86,275 101,824 109,888 TOTAL
Slide 20: Global Store Network Optimization
GLOBAL STORE NETWORK OPTIMIZATION 20
Slide 21: Global Store Network: Stores as of Q3
GLOBAL STORE NETWORK: 881 STORES AS OF Q3 EXCLUDING 16 INTERNATIONAL FRANCHISE STORES ACROSS BRANDS 18 126 CANADA EUROPE 677 10 50 UNITED STATES MIDDLE EAST ASIA 554 HOLLISTER 327 ABERCROMBIE 21
Slide 22: Global Store Network: Optimizing Store Fleet
GLOBAL STORE NETWORK: OPTIMIZING STORE FLEET OVER 1/3 GLOBAL FLEETRD OF IN UPDATED 932 FORMATS 898 881 900 868 861 800 713 700 648 Q3 2019 STORE FLEET DETAIL 575 HOLLISTER ABERCROMBIE TOTAL COMPANY 600 512 # OF % OF # OF % OF # OF % OF 500 464 STORES FLEET STORES FLEET STORES FLEET LEGACY STORES 246
Slide 23: Global Store Network: Reducing Gross Square Footage
GLOBAL STORE NETWORK: REDUCING GROSS SQUARE FOOTAGE HOLLISTER ABERCROMBIE TOTAL COMPANY U.S. INTERNATIONAL U.S. INTERNATIONAL U.S. INTERNATIONAL TOTAL FY 2015 2,856 1,183 2,634 619 5,490 1,802 7,292 FY 2016 2,737 1,218 2,411 641 5,148 1,859 7,007 % CHANGE (4)% 3% (8)% 4% (6)% 3% (4)% CLOSED PEDDER A
Slide 24: Global Store Network: Flagships
GLOBAL STORE NETWORK: FLAGSHIPS FISCAL 2019 FLAGSHIP CLOSURES & FUTURE NATUAL LEASE EXPIRATION CADENCE* P&L IMPACT OF FLAGSHIP STORES 7 Entered fiscal 2019 with 19 flagships after closing the A&F Pedder 7 location in fiscal 2017. In fiscal 2018, these 19 flagships' combined 4-wall operating margin a
Slide 25: Global Store Network Optimization: Q3 2019 Activity
GLOBAL STORE NETWORK OPTIMIZATION Q3 2019 ACTIVITY HOLLISTER ABERCROMBIE (1) TOTAL COMPANY NEW STORES 7 11 18 REMODELS 10 — 10 RIGHT-SIZES 2 4 6 TOTAL NEW EXPERIENCES 19 15 34 STORE CLOSURES — — — (1) Includes seven new stores and two right-sizes related to the abercrombie kids brand. (1) APPROXIMAT
Slide 26: Q3 Store Count Activity
Q3 STORE COUNT ACTIVITY UNITED MIDDLE TOTAL COMPANY TOTAL STATES CANADA EUROPE ASIA EAST END OF Q2 2019 863 663 18 123 49 10 OPENINGS 18 14 — 3 1 — CLOSINGS — — — — — — END OF Q3 2019 881 677 18 126 50 10 HOLLISTER (1) END OF Q2 2019 547 395 11 105 30 6 OPENINGS 7 5 — 2 — — CLOSINGS — — — — — — END
Slide 27: Outlook
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Slide 28: Fiscal 2019 Outlook
FISCAL 2019 OUTLOOK PREVIOUS FULL YEAR OUTLOOK CURRENT FULL YEAR OUTLOOK NET SALES (1) IN THE RANGE OF FLAT TO UP 2% IN THE RANGE OF FLAT TO UP 1% CHANGES IN FOREIGN CURRENCY $45M ADVERSE IMPACT TO NET SALES $40M ADVERSE IMPACT TO NET SALES COMPARABLE SALES (2) IN THE RANGE OF FLAT TO UP 2% IN THE R
Slide 29: Appendix
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Slide 30: Excluded Items
EXCLUDED ITEMS (in thousands) Q1 2019 Q2 2019 Q3 2019 YTD 2019 ASSET IMPAIRMENT $— $— $10,468 $10,468 TAX EFFECT (1) — — (2,485) (2,485) TOTAL EXCLUDED ITEMS $— $— $7,983 $7,983 (in thousands) Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 LEGAL CHARGES $5,600 $— $(3,005) $— $2,595 ASSET IMPAIRMENT — 8,671
Slide 31: Reconciliation of Adjusted Non-GAAP Results
RECONCILIATION OF ADJUSTED NON-GAAP RESULTS Q3 2019 EXCLUDED Q3 2019 GAAP ITEMS NON-GAAP ASSET IMPAIRMENT, EXCLUSIVE OF FLAGSHIP STORE $12,610 $10,468 $2,142 EXIT CHARGES OPERATING INCOME 14,479 (10,468) 24,947 INCOME BEFORE INCOME TAXES 11,557 (10,468) 22,025 INCOME TAX EXPENSE (1) 3,987 (2,485) 6,
Slide 32: Reconciliation of Constant Currency Results
RECONCILIATION OF CONSTANT CURRENCY RESULTS NET SALES Q3 2019 Q3 2018 Δ % GAAP $863,472 $861,194 0% IMPACT FROM CHANGES IN FOREIGN CURRENCY EXCHANGE RATES (1) — (8,302) 1% NON-GAAP CONSTANT CURRENCY BASIS $863,472 $852,892 1% GROSS PROFIT Q3 2019 Q3 2018 Δ BPS (2) GAAP $518,931 $527,819 (120) IMPACT
Slide 33: Abercrombie & Fitch Co.
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