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Abercrombie Q1 profit down 88%, hurt by ‘difficult’ European market

BY Marianne Wilson

New Albany, Ohio — Abercrombie & Fitch Co. reported a 88% decline in its first quarter profit, hurt in part by difficult market conditions in Europe.

For the quarter ended April 28, retailer earned $3.0 million compared with $25.1 million last year. Sales rose 10% to $921.2 million, but same-store sales were down 5%.

"While we are disappointed that European sales trends remain challenging in a very difficult macroeconomic environment, we are largely satisfied with our overall performance for the quarter in that context,” stated Mike Jeffries, CEO and chairman, Abercrombie & Fitch.

Jeffries said the company’s U.S. business, including direct-to-consumer, increased 4% on a comparable basis, on top of a strong performance last year. By brand, comparable store sales decreased 4% for Abercrombie & Fitch, decreased 11% for Abercrombie kids, and decreased 5% for Hollister Co.

“Our international business comped negatively, but the economics remain strong and we delivered overall international sales growth of 42% including a strong performance in direct-to-consumer,” he said. “With cotton cost issues now largely behind us, we look forward to strong year over year earnings growth in the back half of the year."

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Francis’ marketing magic slow to take hold at JCPenney

BY CSA STAFF

When JCPenney hired former Target chief marketer, Michael Francis, to serve as president, the company no doubt thought he would bring with him a bit of Target’s magic. Now, about six months since he assumed his role at JCPenney, the company has undergone a number of personnel changes and the implementation of its new "fair and square" price strategy, and investors are waiting for it to pay off.

To be fair, as mentioned earlier, Francis hasn’t been in is post at JCPenney for even a year, and it will take some time for consumers to get used to the idea of a "no sales" policy. Still, it will be interesting to see how the rest of the fiscal year shakes out.

For the first quarter, the company reported an adjusted net loss of $55 million or 25 cents per share, excluding markdowns taken as a result of the company’s continuing efforts to reduce inventory levels to align with its new strategy, restructuring and management transition charges and non-cash qualified pension expense. On a GAAP basis, the company reported a net loss of $163 million or 75 cents per share. A reconciliation of non-GAAP adjusted net loss to the most directly comparable GAAP financial measure is included with this release.

Comparable-store sales for the first quarter declined 18.9%. Total sales decreased 20.1%, which includes the effects of the company’s exit from its outlet business. Internet sales through jcp.com were $271 million in the first quarter, decreasing 27.9% from last year.

"Sales and profitability have been tougher than anticipated during the first 13 weeks, but the transformation is ahead of schedule. Customers love the new JCP they discover in our stores. Our shop strategy has been applauded by vendor and design partners, our merchants have stepped up to the challenge of improving our merchandise and presentation, we have dramatically simplified our business model and reorganized our teams at headquarters and in our stores. While we have work to do to educate the customer on our pricing strategy and to drive more traffic to our stores, we are confident in our vision to become America’s favorite store. We fully expect that the bold and strategic changes we are making to our operations will result in improved profitability and sustainable growth over the long term," said Ron Johnson, CEO of JCPenney.

In light of charges related to simplifying its operations and adjusting its merchandise assortment, JCPenney said it no longer expects to meet its annual GAAP earnings guidance of $1.59 per share, but affirms its non-GAAP earnings guidance of $2.16 per share which excludes non-cash qualified pension expense, restructuring charges and markdown reserves as it transition its merchandise assortment.

Additionally, the company announced today that it will discontinue the 20 cents per share quarterly dividend. On an annual basis, this will result in cash savings of approximately $175 million, which will be used to help fund the broad-based transformation plan that JCPenney announced in January.

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Target tops earnings view even after earlier increase

BY CSA STAFF

MINNEAPOLIS — First quarter earnings at Target exceeded a profit forecast the company increased last month after a strong start to the quarter.

Sales increased 6.1% to $16.5 billion, and same-store sales advanced 5.3%. The sales momentum combined with rigid expense control enabled the company to report first quarter earnings per share of $1.04, which exceeded a guidance range that had been increased to 96 cents to $1.02 from 88 cents to 98 cents in early April following better than expected same-store sales during the first two months of the quarter.

“We’re very pleased with our first quarter earnings, which benefited from better-than-expected sales,” said Gregg Steinhafel, Target’s chairman, president and CEO. “While our outlook for the remainder of 2012 reflects continued economic uncertainty, we are confident in our strategy, keenly focused on delivering an affordable and inspirational merchandise assortment to our guests and committed to making thoughtful investments in our U.S. and Canadian business segments that we expect will reward our shareholders over time.”

The company also exceeded its adjusted earnings forecast, which takes into account expenses incurred in relation to next year’s entry into Canada. Adjusted earnings per share were $1.11 in first quarter, and increase of 11.5% from the 99 cents during the prior year years. The $1.11 figure exceeded guidance of $1.04 to $1.10 that had been increased in early April from a range of 97 cents to $1.07.

Gross margins declined slightly to 30.2% from 30.4% as lower margin food and consumables accounted for a larger percentage of overall sales. The decline was more than offset by a reduction in expense as which declined to 19.9% compared with 20.4% the prior year.

The solid first quarter showing prompted the company to raise its full year earnings forecast by five cents to a range of $4.10 to $4.30 or, excluding cost related to Canada, $460 to $4.80.

Target ended the first quarter with 1,764 stores.

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