Abercrombie & Fitch Profits Increase 20%

Offering trend-right fashion led to a "solid fourth quarter" for specialty retailer Abercrombie & Fitch Co. which posted a 20.4 percent profit gain on an 18.4 percent increase in sales.

Offering trend-right fashion led to a “solid fourth quarter” for specialty retailer Abercrombie & Fitch Co., which posted a 20.4 percent profit gain on an 18.4 percent increase in sales.

The strong quarterly performance also bolstered year-end profits and sales for the New Albany, Ohio, company.

For the fourth quarter ended Jan. 28, A&F’s net income rose to $198.2 million, or $2.14 a share, from $164.6 million, or $1.80 a share, in the prior year, on sales that climbed to $1.1 billion from $961.4 million. Same-store sales for the quarter fell 3 percent, but it was over a 28 percent comps gain in the prior year.

For the year-end period, net income soared 26.4 percent, to $422.2 million, or $4.59 a share, from $334 million, or $3.66 a share, in the prior year, on sales that gained 19.2 percent, to $3.3 billion from $2.8 billion.

Mike Jeffries, chief executive officer and chairman of Abercrombie & Fitch, said in a statement Wednesday that the retailer’s “strong performance demonstrates the proper positioning of our brands and strength of our business model.”

“Investments made in our brands and business continue to pay off in the form of high-quality sales and earnings growth,” he explained. “We are confident that this deliberate strategy will continue to provide top-line expansion over the long term, resulting in more leveraged growth.”

The retailer said it expected to dole out between $360 million and $370 million on capital expenditures this year, “approximately $220 million of this amount allocated to new store construction and store remodels.”

Gross square footage is expected to grow 12 percent this year, “primarily through the addition of six new Abercrombie & Fitch stores, 67 new Hollister Co. stores, 27 new abercrombie stores and 10 new Ruehl stores. The company also intends to introduce its next concept in January 2008 with the opening of three stores.”

Although the retailer has been closed-lipped about the new concept, several analysts and market sources are betting on an intimates and/or accessories format.

On a conference call, Jeffries said the “first area of investment” would be new concepts to drive sales, a strategy based on the strong performance of the company’s Ruehl stores. Jeffries said Ruehl “performed well in 2006, exhibiting strong trends in many areas. From a productivity standpoint, the average Ruehl store averaged $22 million in sales in fiscal 2006.”

This story first appeared in the February 22, 2007 issue of WWD.  Subscribe Today.

With its new concept, Jeffries said there would be a launch in January 2008 and “seven stores opening by March 2008.”

“The business has been in the development phase for two years,” the ceo said. “We invested $7.5 million in 2006 in home office start-up activities and expect to invest from $12 million to $15 million in 2007. We are very excited about this business and believe it has huge potential.”

The retailer offered earnings per share guidance in the range of $1.47 to $1.52 for the current year, which represents a gain of 10 percent to 13 percent over 2006. “Due to the impact of the company’s London pre-opening store costs, along with the difficult comparisons to last year’s tax rate favorability, diluted earnings per share growth in the first quarter of 2007 is expected to be in the mid-single- digit range,” the company said in its quarterly report. “The low end of the earnings guidance reflects a flat comparable-store sales scenario for the first half of fiscal 2007.”

The retailer operates 360 Aber­crombie & Fitch stores, 177 abercrombie stores, 393 Hollister Co. stores and 14 Ruehl units.