Rosy profit, outlook send Abercrombie shares up 30 percent

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Published November 14, 2012

| Reuters

Robust demand in foreign markets helped Abercrombie & Fitch Co report unexpectedly improved third-quarter profit and a full-year outlook that exceeded analysts' estimates, sending shares up as much as 30 percent on Wednesday.

The retailer expects to earn $2.85-$3.00 a share for the full year. Analysts, on average, expect the company to earn $2.48 a share, according to Thomson Reuters I/B/E/S.

Over the past year, sales at Abercrombie & Fitch have dropped in a segment dominated by so-called fast-fashion retailers - rivals with a quicker turnover of inventory and styles, such as American Eagle Outfitters and Gap Inc , or Forever21, which offers affordable clothing for more seasons.

The company has moved to curb dwindling sales by boosting sourcing from the United States and Central America, and delaying expansion in troubled European markets.

Abercrombie & Fitch was "being highly disciplined" with inventory management, and was working to ensure sales growth outpaced that of inventory, Chief Executive Mike Jeffries said on a call with analysts Wednesday.

When a retailer's inventory grows more quickly than sales, discounts in price are often called for to offload built-up merchandise, which erodes profit margins.

Jeffries said the company was working on shortening lead time between placing orders to manufacturers and getting them in store, and would be focusing on current street and runway trends for its merchandise line.

Shares of the company, which hired Goldman Sachs Group Inc in September to help ward off pressure from investors, were up 28 percent at $40 in morning trading on the New York Stock Exchange. The stock has lost about a third of its value since hitting a year-high of $57.56 in November.

Same-store sales for the third quarter, or sales at established stores open at least a year, fell 3 percent, an improvement over the 10 percent drop in the second quarter.

Same-store sales are expected to drop into the mid-single-digit percentage in the fourth quarter.

Still, the improved performance doesn't signal the end of Abercrombie's troubles, analyst Brian Sozzi of NBG Productions said.

"I don't believe Abercrombie is suddenly the share winner in teen apparel land, and what is being seen today is management of Street expectations and perhaps, top line related leverage from prior flagship store openings," he said in a note to clients.

For the third quarter ended Oct. 27, Abercrombie earned $71.5 million, or 87 cents a share, compared with $50.9 million, or 57 cents a share, in the same quarter last year. Analysts were expecting earnings of 59 cents a share.

Sales grew 9 percent to $1.17 billion, led by a 37 percent rise in international markets. (Reporting by Nivedita Bhattacharjee in Chicago; Editing by Bernadette Baum)

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