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Abercrombie posts blowout quarter on higher margins

By
Reuters
Published
today May 18, 2011
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May 18 - Abercrombie & Fitch Co beat Wall Street's quarterly profit estimates for the fourth time in a row, as the teen retailer gained market share from rivals in both domestic and international markets, sending its shares up 5 percent at open.

Abercrombie & Fitch
Abercrombie is opening its first Parisian boutique on May 19th

The company's decision to give up its high-priced-and-won't-discount stance has helped, with teenagers happily returning to its stores to shop for denims and T-shirts.

And as shoppers have resumed spending relatively more on clothes, Abercrombie has consistently gained market share from rivals such as American Eagle Outfitters and Aeropostale.

"The consumer, usually mom and dad shelling out the bucks at the cash register, is perceiving the company's products to offer good value," Wall Street Strategies analyst Brian Sozzi said.

"While others in teen apparel have removed product quality to combat cost inflation and raised prices on those cheaper blends, Abercrombie & Fitch has maintained quality and prices in some classifications," the analyst said.

During the first quarter, sales rose 22 percent to $836.7 million -- 13 percent in the United States, and 64 percent internationally.

It earned $25.1 million, or 28 cents a share. From continuing operations, it earned 27 cents a share, while analysts, on average, had expected earnings of 12 cents a share, according to Thomson Reuters I/B/E/S.

Gross margins rose 230 basis points to 65 percent, but Abercrombie said it expects margin pressure in the second quarter as it balances higher input costs.

"The first quarter will be the high water mark for Abercrombie's gross margin as drivers such as lower average unit costs and freight benefits vanish amid a world of inflationary pressures," analyst Sozzi said, but added that price increases would help the company offset these pressures to some degree.

Most apparel companies have had to raise prices as costs of raw materials like cotton and labor costs in China rise.

Abercrombie, which operates more than 1,000 stores in its Abercrombie & Fitch and Hollister chains, is also relying on international expansion even as it closes weaker U.S. stores.

On Wednesday, the company said it expects to open five international Abercrombie & Fitch flagship locations and up to 40 international mall-based Hollister stores, and "a minimal number of domestic store openings" in 2011.

Abercrombie, which also runs the abercrombie kids and Gilly Hicks stores, said in February it planned to open its first Hollister stores in mainland China and Hong Kong, and Abercrombie & Fitch flagship stores in Paris, Madrid, Dusseldorf, Brussels, Dublin and Singapore.

Shares of Abercrombie were up 3.6 percent at $75.77 after rising to a high of $76.75 on Wednesday on the New York Stock Exchange.

(Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Sriraj Kalluvila, Maju Samuel)

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