Abercrombie & Fitch Company · NYSE:ANF
Abercrombie & Fitch — Q2 2019 Earnings Presentation
33 slides from Abercrombie & Fitch's earnings presentation, Aug 30, 2019
Slide 1: Investor Presentation: Second Quarter 2019
Investor Presentation: Second 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
Abercrombie ARE | a&t | a | 2s ichag & Fitch Co.
Slide 5: Our Brands
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 The quintessential retail brand of the global teen abercrombie kids consumer, Hollist
Slide 6: Our Journey: Growing While Transforming
FISCAL 2019 IS THE SECOND YEAR OF OUR 'GROWING WHILE OUR JOURNEY TRANSFORMING' PHASE PHASEPHASE 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
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: Q2 CEO Commentary
Q2 CEO COMMENTARY "Trends improved throughout the second quarter, enabling us to deliver constant currency revenue growth and meet our previously- issued comp and gross profit rate outlook, while continuing to tightly manage expenses. Importantly, we have had a solid start to back-to-school in the U
Slide 10: Income Statement
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Slide 11: Q2 Net Sales by Brand and Geography
Q2 NET SALES DECREASED 0.2%, CONSTANT CURRENCY NET YTD SALES INCREASED 1% AND COMPARABLE SALES FLAT* ABERCROMBIE ABE40.8%RCRO MBIE 40.0% BRAND HOLLISTER ABERCROMBIE HOHOLLISTERLLISTER C CO.O. $505M $336M 59.2%60.0 % • 60.0% OF TOTAL NET SALES • 40.0% OF TOTAL NET SALES • NET SALES UP 1% FROM LAST YE
Slide 12: Q2 Operating Expense Leverage
CONTINUE TO Q2 OPERATING EXPENSE LEVERAGE STORE OCCUPANCY EXPENSE GAAP % OF NET GAAP % OF NET (in thousands) 2019 SALES 2018 SALES Δ BPS (3) STORE OCCUPANCY (1) $152,581 18.1% $156,112 18.5% (40) ALL OTHER (2) 223,766 26.6% 218,440 25.9% 70 STORES AND DISTRIBUTION 376,347 44.7% 374,552 44.5% 20 MARK
Slide 13: Q2 Income Statement Summary
Q2 INCOME STATEMENT SUMMARY % OF NET % OF NET (in thousands) 2019 SALES 2018 SALES NET SALES $841,078 100.0% $842,414 100.0% GROSS PROFIT (1) 498,633 59.3% 506,895 60.2% OPERATING EXPENSE 537,750 63.9% 507,106 60.2% OTHER OPERATING INCOME, NET 367 0.0% (434) (0.1)% OPERATING (LOSS) INCOME (39,484) (
Slide 14: Q2 Adjusted Income Statement Summary
Q2 ADJUSTED INCOME STATEMENT SUMMARY* % OF NET % OF NET (in thousands) 2019 SALES 2018 SALES NET SALES $841,078 100.0% $842,414 100.0% GROSS PROFIT (1) 498,633 59.3% 506,895 60.2% OPERATING EXPENSE 537,750 63.9% 498,435 59.2% OTHER OPERATING INCOME, NET 367 0.0% (434) (0.1)% OPERATING (LOSS) INCOME
Slide 15: Capital Allocation
Abercrombie & Fitch Co. ARE | a&f | wo | 7s hicheg
Slide 16: Returned $84.2M to Shareholders Through Repurchases and Dividends
RETURNED $84.2M 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 RETURNED MILLION TO Q1 2019 — $— $— $13,246 $13,246 SHAREHOLDERS$84.2 YEAR-TO-DATE Q2 2019 3,545 57,812
Slide 17: Shares Outstanding
SHARES OUTSTANDING AT THE END OF THE SECOND QUARTER OF FISCAL 2019, THE COMPANY HAD APPROXIMATELY 5.0 MILLION SHARES REMAINING AVAILABLE FOR PURCHASE UNDER ITS PUBLICLY ANNOUNCED STOCK REPURCHASE AUTHORIZATIONS. REPURCHASED OVER 3.5 MILLION SHARES IN 69,000,000 Q2 2019 68,195,273 67,758,163 68,000,0
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 AUGUST 3, 2019 (1) FEBRUARY 2, 2019 AUGUST 4, 2018 CASH AND EQUIVALENTS $499,757 $723,135 $581,166 CASH & EQUIVALENTS $500M AS COMPARED RECEIVABLES 98,691 73,112 91,719 TO $581M LAST YEAR INVENTORIES 487,109 437,879 454,913 OTHER CURRENT ASSETS 86,586 101,824 115,276 TOTAL CURR
Slide 20: Global Store Network Optimization
GLOBAL STORE NETWORK OPTIMIZATION 20
Slide 21: Global Store Network: Stores as of Q2
GLOBAL STORE NETWORK: 863 STORES AS OF Q2 EXCLUDING 16 INTERNATIONAL FRANCHISE STORES ACROSS BRANDS 18 123 CANADA EUROPE 663 10 49 UNITED STATES MIDDLE EAST ASIA 547 HOLLISTER 316 ABERCROMBIE 21
Slide 22: Global Store Network: Optimizing Store Fleet
GLOBAL STORE NETWORK: OPTIMIZING STORE FLEET OVER 1/3 RD OF GLOBAL FLEET IN UPDATED FORMATS AS OF Q2 2019 932 898 900 868 861 863 800 713 700 648 575 Q2 2019 STORE FLEET DETAIL 600 512 480 HOLLISTER ABERCROMBIE TOTAL COMPANY 500 # OF % OF # OF % OF # OF % OF STORES FLEET STORES FLEET STORES FLEET 40
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)% PEDDER A&F FLAG
Slide 24: Global Store Network: Flagships
GLOBAL STORE NETWORK: FLAGSHIPS Fiscal 2019 Flagship Closures & Future Natural Lease Expiration Cadence 7 7 Entered fiscal 2019 with 19 flagships after closing the A&F Pedder location in fiscal 2017: 6 • In fiscal 2018, these 19 flagships' combined 4-wall operating margin adversely impacted operatin
Slide 25: Q2 Store Count Activity
Q2 STORE COUNT ACTIVITY UNITED MIDDLE TOTAL COMPANY TOTAL STATES CANADA EUROPE ASIA EAST END OF Q1 2019 857 660 18 122 48 9 OPENINGS 8 5 — 1 1 1 CLOSINGS (2) (2) — — — — END OF Q2 2019 863 663 18 123 49 10 HOLLISTER (1) END OF Q1 2019 542 393 11 104 29 5 CLOSURES INCLUDE OPENINGS 7 4 — 1 1 1 HOLLIST
Slide 26: Global Store Network Optimization Activity
GLOBAL STORE NETWORK OPTIMIZATION Q2 2019 ACTIVITY HOLLISTER ABERCROMBIE (1) TOTAL COMPANY NEW STORES 7 1 8 REMODELS 6 — 6 RIGHT-SIZES 6 6 12 TOTAL NEW EXPERIENCES 19 7 26 STORE CLOSURES (2) — (2) (1) Includes one new store and three right-sizes related to the abercrombie kids brand. APPROXIMATELY F
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) UP IN THE RANGE OF 2% TO 4% IN THE RANGE OF FLAT TO UP 2% CHANGES IN FOREIGN CURRENCY $30M ADVERSE IMPACT TO NET SALES $45M ADVERSE IMPACT TO NET SALES COMPARABLE SALES (2) UP LOW-SINGLE DIGITS IN THE RANGE OF FLA
Slide 29: Appendix
Abercrombie & Fi A&E | a&f | a | 9% hichey
Slide 30: Excluded Items
EXCLUDED ITEMS* (in thousands) Q1 2018 Q2 2018 Q3 2018 Q4 2018 FULL YEAR LEGAL CHARGES $5,600 $— $(3,005) $— $2,595 ASSET IMPAIRMENT — 8,671 — — 8,671 PRE-TAX EXCLUDED ITEMS 5,600 8,671 (3,005) — 11,266 TAX EFFECT (1) (1,541) (2,689) 1,064 683 (2,483) TAX CUTS AND JOBS ACT OF 2017 — 2,042 405 (5,982
Slide 31: Reconciliation of Adjusted Non-GAAP Results
RECONCILIATION OF ADJUSTED NON-GAAP RESULTS* Q2 2018 EXCLUDED Q2 2018 (in thousands) GAAP ITEMS NON-GAAP ASSET IMPAIRMENT (1) $8,671 $8,671 $— OPERATING INCOME 223 (8,671) 8,894 (LOSS) INCOME BEFORE INCOME TAXES (2,800) (8,671) 5,871 INCOME TAX EXPENSE (2) 24 (647) 671 NET (LOSS) INCOME $(3,853) $(8
Slide 32: Reconciliation of Constant Currency Results
RECONCILIATION OF CONSTANT CURRENCY RESULTS NET SALES Q2 2019 Q2 2018 Δ % GAAP $841,078 $842,414 0% IMPACT FROM CHANGES IN FOREIGN CURRENCY EXCHANGE RATES (1) — (9,957) 1% NON-GAAP CONSTANT CURRENCY BASIS $841,078 $832,457 1% GROSS PROFIT Q2 2019 Q2 2018 Δ BPS (2) GAAP $498,633 $506,895 (90) IMPACT
Slide 33: Abercrombie & Fitch Co.
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