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Feb 16, 2010
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Abercrombie profit beats Street, sales light

By
Reuters
Published
Feb 16, 2010

By Phil Wahba

NEW YORK, Feb 16 (Reuters) - Abercrombie & Fitch Co (ANF.N) posted a higher-than-expected quarterly profit on Tuesday 16 February as it avoided steep discounts over the holidays and said it would lean more heavily on international markets for growth.


Abercrombie & Fitch - Photo: www.abercrombie.com

The teen apparel retailer, whose shares rose 2.8 percent in light premarket trading, posted a 12-percent drop in U.S. sales, which account for the vast majority of revenue, while international sales surged 86 percent.

Calling the retail environment in 2009 "very difficult," Chief Executive Mike Jeffries said in a statement said Abercrombie intended "to grow the business internationally."

Shares were up 55 cents to $34.40 in premarket trading.

The company, which operates about 1,100 stores around the world under its Abercrombie & Fitch, Abercrombie and Hollister Co chains, said it planned to open about 30 mall-based Hollister stores internationally in 2010.

Abercrombie posted net profit of $47.5 million, or 53 cents per share, for the fourth quarter ended on Jan. 30, down from $68.4 million, or 79 cents per share, a year earlier.

Excluding discontinued operations and impairment charges, Abercrombie reported earnings of 91 cents per share. Analysts on average had forecast a profit of 87 cents per share, according to Thomson Reuters I/B/E/S.

Revenue fell 4.6 percent to $936 million, below analysts' forecasts of $953.7 million. Sales at stores open at least a year fell 13 percent.

"Their discounts were maybe not as big as feared, but the numbers are still bad," said Brian Sozzi, an analyst with Wall Street Strategies.

UNPLANNED MARKDOWNS

Abercrombie's gross margins had slipped 1.1 percentage points because of unplanned markdowns on spring items that will go directly to clearance sales or outlet stores.

Same-store sales at its Hollister stores were the weakest, falling by 19 percent, while comparable sales at Abercrombie & Fitch stores were down 8 percent. The two chains accounted for about 87 percent of the company's sales during the quarter.

Many investors are still skeptical of a turnaround at the company, which has been trying to add more fashionable merchandise and lower prices without eroding its brand.

Bulls point to considerable international growth possibilities as a plus, but skeptics say the company needs to stabilize its domestic business and prove that it can still operate in a post-recession environment of lower prices and intense competition.

Earlier this month, Abercrombie posted a surprise 8 percent gain in January same-store sales. Those sales were lifted by an accounting deferment, but nonetheless gave analysts hope that the company's sales are improving. (Reporting by Phil Wahba and Alexandria Sage; Editing by Lisa Von Ahn and Derek Caney)

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