NEW ALBANY, Ohio- Abercrombie & Fitch Co. (NYSE: ANF) today announced results for the second quarter ended July 31, 2021. These compare to results for the second quarter ended August 1, 2020. Descriptions of the use of non-GAAP financial measures and reconciliations of GAAP and non-GAAP financial measures accompany this release.
Fran Horowitz, Chief Executive Officer, said, 'As our customers' mindset shifted to summer, we continued to deliver on product, voice and experience. Total net sales grew 24% year-over-year, or 3% from 2019. Our largest market, the U.S., had healthy net sales growth of 31% on a one-year and 11% on a two-year basis. As customers returned to stores, digital net sales held steady to last year, and remained highly penetrated, representing 44% of total second quarter sales. Our gross profit rate expanded dramatically, rising 450 basis points from last year and 590 basis points from the second quarter of 2019, benefiting from double-digit AUR improvement. Combined with ongoing expense management, we expanded our operating margin by 1130 basis points year-over-year and 1800 basis points on a two-year basis.'
'Momentum has continued quarter-to-date. We have had a strong start to the U.S. back-to-school season. Reception to the Gilly Hicks brand relaunch, associated product, and updated store experiences has been very positive. At our newest brand, Social Tourist, we are excited about our learnings and results since its launch just three months ago. Looking ahead, we will remain on offense and are confident that the proactive steps we have taken to evolve our operating model and cost structure, combined with evolved brand positioning, should continue to yield near and long-term benefits.'
Details related to net income per diluted share for the second quarter are as follows:
2021 2020
GAAP $1.69 $0.09
Excluded items, net of tax effect (1) (0.01) (0.15)
Adjusted non-GAAP $1.70 $0.23
Impact from changes in foreign currency exchange rates (2) - 0.04
Adjusted non-GAAP constant currency $1.70 $0.27
(1) Excluded items consist of pre-tax store asset impairment charges and the tax effect of pre-tax excluded items.
(2) The estimated impact from foreign currency is calculated by applying current period exchange rates to prior year results using a 26% tax rate.
A summary of results for the second quarter ended July 31, 2021 as compared to the second quarter ended August 1, 2020:
Net sales of $865 million, up 24% as compared to last year and up 3% as compared to pre-COVID 2019 second quarter net sales.
Digital net sales of $376 million decreased 3% as compared to last year and increased 52% as compared to pre-COVID 2019 second quarter digital net sales.
Gross profit rate improved 450 basis points as compared to last year and 590 basis points as compared to 2019 to 65.2% driven by higher average unit retail on lower promotions.
Operating expense, excluding other operating income, net, was up 9% and up 11% as compared to last year on a reported and adjusted non-GAAP basis, respectively, reflecting an increase in payroll and customer-facing expenses and a decrease in store occupancy. Operating expense as a percentage of sales decreased to 52.1% and 52.0% from 59.0% and 57.8% on a reported and adjusted non-GAAP basis, respectively.
Operating income of $115 million and $116 million on a reported and adjusted non-GAAP basis, respectively, as compared to operating income of $14 million and $22 million last year, on a reported and adjusted non-GAAP basis, respectively.
Net income per diluted share of $1.69 and $1.70 on a reported and adjusted non-GAAP basis, respectively, which both reflect benefits of $0.53 related to the release of income tax valuation allowances and the impact of a statutory rate change on the valuation of deferred tax assets, as compared to net income per diluted share last year of $0.09 and $0.23 on a reported and adjusted non-GAAP basis, respectively.
Net Sales
Net sales by brand and region for the second quarter are as follows:
(in thousands) 2021 2020 % Change Net sales by brand:
Hollister (1) $514,483 $429,248 20%
Abercrombie (2) 350,367 269,080 30%
Total company $864,850 $698,328 24%
Net sales by region: 2021 2020 % Change
United States $601,767 $458,671 31%
EMEA 190,840 171,297 11%
APAC 41,228 41,814 (1)%
Other 31,015 26,546 17%
International $263,083 $239,657 10%
Total company $864,850 $698,328 24%
(1) Hollister includes the Hollister, Gilly Hicks and Social Tourist brands.
(2) Abercrombie includes the Abercrombie & Fitch and abercrombie kids brands.
Financial Position and Liquidity
As of July 31, 2021 the company had:
Cash and equivalents of $0.9 billion. This compares to cash and equivalents of $1.1 billion and $0.8 billion as of January 30, 2021 and August 1, 2020, respectively.
Inventories of $416 million, down 8% as compared to August 1, 2020.
Long-term gross borrowings under the company's senior secured notes of $308 million (the 'Senior Secured Notes') which mature in July 2025 and bear interest at a rate of 8.75% per annum.
Borrowing available under the senior-secured asset-based revolving credit facility (the 'ABL Facility') of $249 million.
Liquidity, comprised of cash and equivalents and borrowing available under the ABL Facility, of approximately $1.2 billion. This compares to liquidity of $1.3 billion and $1.1 billion as of January 30, 2021 and August 1, 2020, respectively.
Cash Flow and Capital Allocation
Details related to the company's cash flows for the year-to-date period ended July 31, 2021 are as follows:
Net cash provided by operating activities of $50 million.
Net cash used for investing activities of $35 million. The company expects capital expenditures for fiscal 2021 to be approximately $100 million as compared to $102 million of capital expenditures in fiscal 2020.
Net cash used for financing activities of $200 million.
The company repurchased approximately 2.4 million shares during the second quarter and, at the end of the second quarter, had the authority to repurchase approximately 6.5 million shares as a part of the A&F Board of Directors' previously approved February 2021 share repurchase authorization. The company has returned $135 million to shareholders during the year-to-date period ended July 31, 2021 through share repurchases. The timing and amount of repurchases will depend on various factors, including market and business conditions. In addition, during the second quarter, the company spent $47 million to purchase $42.3 million at par value of its senior secured notes at a premium of $4.7 million.
During the first quarter of fiscal 2021, the company finalized an agreement with and paid its landlord partner to settle all remaining obligations related to the SoHo Hollister flagship store in New York City, which closed during the second quarter of fiscal 2019. Prior to this new agreement, the company was required to make payments in aggregate of $80 million pursuant to the lease agreements through fiscal 2028. The new agreement resulted in an acceleration of payments and provided for a discount resulting in a cash outflow of $64 million during the first quarter to settle all remaining obligations. This strategic use of excess cash reduced the company's operating lease liabilities by $65 million and eliminated future interest expense related to this obligation.
Depreciation and amortization was $72 million for the year-to-date period ended July 31, 2021.
Conference Call
Today at 8:30 AM, ET, the company will conduct a conference call. To listen to the conference call, dial (800) 458-4121 or go to corporate.abercrombie.com. The international call-in number is (323) 794-2093. 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 3919672 or through corporate.abercrombie.com. A presentation of second quarter results will be available in the 'Investors' section at corporate.abercrombie.com at approximately 7:30 AM, ET, today.
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,' 'should,' 'are confident,' and similar expressions may identify forward-looking statements. Except as may be required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements. The following factors, in addition to those disclosed in 'ITEM 1A. RISK FACTORS' of A&F's Annual Report on Form 10-K for the fiscal year ended January 30, 2021, in some cases have affected, and in the future could affect, A&F's financial performance and could cause actual results for fiscal 2021 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: COVID-19 has and may continue to materially adversely impact and cause disruption to our business; 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 impact on our business; failure to engage our customers, anticipate customer demand and changing fashion trends, and manage our inventory commensurately could have a material adverse impact on our business; our failure to operate effectively in a highly competitive and constantly evolving industry could have a material adverse impact on our business; fluctuations in foreign currency exchange rates could have a material adverse impact on our business; 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; the impact of war, acts of terrorism, mass casualty events, social unrest, civil disturbance or disobedience could have a material adverse impact on our business; the impact of extreme weather, infectious disease outbreaks, including COVID-19, and other unexpected events could result in an interruption to our business, as well as to the operations of our third-party partners, and have a material adverse impact on our business; failure to successfully develop an omnichannel shopping experience, a significant component of our growth strategy, or failure to successfully invest in customer, digital and omnichannel initiatives could have a material adverse impact on our business; our failure to optimize our global store network could have a material adverse impact on our business; our failure to execute our international growth strategy successfully and inability to conduct business in international markets as a result of legal, tax, regulatory, political and economic risks could have a material adverse impact on our business; our failure to appropriately address emerging environmental, social and governance matters could have a material adverse impact on our reputation and, as a result, our business; failure to protect our reputation could have a material adverse impact on our business; if our information technology systems are disrupted or cease to operate effectively, it could have a material adverse impact on our business; we may be exposed to risks and costs associated with cyber-attacks, data protection, credit card fraud and identity theft that could have a material adverse impact on our business; our reliance on our distribution centers makes us susceptible to disruptions or adverse conditions affecting our supply chain; changes in the cost, availability and quality of raw materials, labor, transportation, and trade relations could have a material adverse impact on our business; 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 have a material adverse impact on our business; we rely on the experience and skills of our executive officers and associates, and the failure to attract or retain this talent, effectively manage succession, and establish a diverse workforce could have a material adverse impact on our business; we identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future. If we fail to remediate our material weaknesses, or if we fail to establish and maintain effective internal control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected; fluctuations in our tax obligations and effective tax rate may result in volatility in our results of operations could have a material adverse impact on our business; our litigation exposure, or any securities litigation and shareholder activism, could have a material adverse impact on our business; failure to adequately protect our trademarks could have a negative impact on our brand image and limit our ability to penetrate new markets which could have a material adverse impact on our business; changes in the regulatory or compliance landscape could have a material adverse impact on our business; and the agreements related to our senior secured asset-based revolving credit facility and our senior secured notes include restrictive covenants that limit our flexibility in operating our business and our inability to obtain credit on reasonable terms in the future could have an adverse impact on our business.
About Abercrombie & Fitch Co.
Abercrombie & Fitch Co. (NYSE: ANF) is a leading, global specialty retailer of apparel and accessories for men, women and kids through five renowned brands. The iconic Abercrombie & Fitch brand was born in 1892 and aims to make every day feel as exceptional as the start of a long weekend. abercrombie kids sees the world through kids' eyes, where play is life and every day is an opportunity to be anything and better anything. The Hollister brand believes in liberating the spirit of an endless summer inside everyone and making teens feel celebrated and comfortable in their own skin. Gilly Hicks, offering intimates, loungewear and sleepwear, is designed to give all Gen Z customers their daily dose of happy. Social Tourist, the creative vision of Hollister and social media personalities, Dixie and Charli D'Amelio, offers trend forward apparel that allows teens to experiment with their style, while exploring the duality of who they are both on social media and in real life.
The brands share a commitment to offering products of enduring quality and exceptional comfort that allow consumers around the world to express their own individuality and style. The company operates over 730 stores under these brands across North America, Europe, Asia and the Middle East, as well as the e-commerce sites www.abercrombie.com, abercrombiekids.com, www.hollisterco.com, www.gillyhicks.com, and www.socialtourist.com.
Investor Contact: Media Contact:
Pamela Quintiliano Mackenzie Gusweiler
Abercrombie & Fitch Co. Abercrombie & Fitch Co.
(614) 283-6751 (614) 283-6192
Investor_Relations@anfcorp.com Public_Relations@anfcorp.com
See full results at: https://abercrombieandfitchcompany.gcs-web.com/news-releases/news-release-details/abercrombie-fitch-co-reports-second-quarter-results-3
Hollister includes the company's Hollister and Gilly Hicks brands. Locations with Gilly Hicks carveouts within Hollister stores are represented as a single store count. Excludes 10 international franchise stores as of each of July 31, 2021 and May 1, 2021, and 9 international franchise stores as of January 30, 2021. Excludes 14 Company-operated temporary stores as of July 31, 2021 and 12 Company-operated temporary stores as of each of May 1, 2021, and January 30, 2021.
(2) Abercrombie includes the company's Abercrombie & Fitch and abercrombie kids brands. Locations with abercrombie kids carveouts within Abercrombie & Fitch stores are represented as a single store count. Excludes 12 international franchise stores as of each of July 31, 2021 and May 1, 2021, and 10 international franchise stores as of January 30, 2021. Excludes four Company-operated temporary stores as of each of July 31, 2021 and May 1, 2021, and two Company-operated temporary stores as of January 30, 2021.
(3) This store count excludes one international third-party operated multi-brand outlet store as of each of July 31, 2021, May 1, 2021, and January 30, 2021.
Source: Abercrombie & Fitch Management Co.
ABERCROMBIE & FITCH CO. 
