Abercrombie books loss, plans review of Ruehl unit

NEW YORK - Abercrombie & Fitch Co. reported a deeper-than-expected loss for the first quarter on Friday and said it is deciding the future of its Ruehl business, which is aimed at older shoppers than its namesake teen apparel chain.

The company, which has resisted cutting prices as drastically as other teen retailers, reduced prices during the quarter and said it is "actively planning for meaningful reductions" - especially in its Hollister and children's stores.

"The consumer is reluctant to spend on premium brands," said Chairman and Chief Executive Mike Jeffries during a conference call with investors. "There is a price consciousness dictating shoppers' purchases today, unlike anything I have seen before."

Sales also suffered, he said, because the company failed to anticipate some key women's fashion trends.

"Clearly we missed dresses and clearly we weren't as aggressive with print and pattern as we should have been," Jeffries said. "We were wrong. I was wrong, and we're correcting as we go forward."

Dresses will be delivered to the company's stores "aggressively" during the current quarter, he said.

Abercrombie said it expects to take a charge related to the Ruehl business of up to about $55 million before taxes, which will be added to the first-quarter report it files with the Securities and Exchange Commission.

Excluding that still-to-be-determined charge, the New Albany, Ohio-based company posted a loss of $26.8 million, or 31 cents per share, for the period that ended May 2. In contrast, Abercrombie reported a profit of $62.1 million, or 69 cents per share, last year.

Chief Financial Officer Jonathan Ramsden said the price reductions pressured Abercrombie's margins. "We continue to test and evaluate our approach to markdowns, but anticipate continued pressure on the gross margin rate for 2009 as a result of markdowns," he added.

Analysts polled by Thomson Reuters had forecast a loss of 14 cents per share. The company blamed higher occupancy expenses, which were mostly related to new store openings last year, for its wide miss of Wall Street's consensus earnings forecast.

Abercrombie shares fell $1.09, or 4 percent, to $26.16 in morning trading - near the low end of its 52-range of $13.66 to $77.25.

Net sales tumbled 24 percent to $612.1 million, falling short of Wall Street's expectations for $616.5 million. Sales at stores open at least one year, known as same-store sales, dropped 30 percent. Same-store sales are a key measure of retailer performance because they measure growth at existing stores rather than from newly opened ones.

At the main Abercrombie & Fitch stores, same-store sales fell 26 percent, but they tumbled by 34 percent in the long-struggling Ruehl business of 29 stores.

"We believe the company is likely to shutter the division," Thomas Weisel Partners analyst Liz Dunn wrote in a note to investors. Abercrombie did not say when it expected to complete that review.

Abercrombie also did not give an outlook for the full year, but analysts, on average, expect a profit of $1.45 per share on revenue of roughly $3.1 billion. Dunn said she sees "significant risk" to that forecast. The company said it could take future charges stemming from the Ruehl review.