By  on May 17, 2006

NEW YORK — Abercrombie & Fitch Co. delivered a 39.1 percent increase in first-quarter net profits as its abercrombie and Hollister divisions clocked robust sales.

As a result, the New Albany, Ohio, specialty retailer raised first-half earnings per share estimates and said it was increasing capital expenditures to support its store growth.

Net income for the quarter ended April 29 leaped to $56.2 million, or 62 cents a diluted share, from $40.4 million, or 45 cents a share, in the same period last year. Sales rose 20.2 percent to $657.3 million from $546.8 million. Earnings were ahead of Wall Street estimates by at least 7 cents.

Mike Jeffries, chief executive officer and chairman, said in a statement the company is "continuing to achieve strong financial results against the results we posted in 2005. We made progress for the first quarter including increased sales and margin. This improvement, resulting in net income growth of 39 percent, represents a good start to fiscal 2006."

"Although our results will continue to be measured against the growth we attained last year, I am confident that our brands are positioned to generate strong financial returns this year," he added.

During the most recent quarter, the gross margin rate was 65.4 percent, which compares with 65.3 percent in the prior-year period. Operating income as a percent of sales rose to 12.8 percent from 12.5 percent in the previous year's quarter. Total same-store sales for the quarter showed an increase of 6 percent.

By brand, the retailer's Abercrombie & Fitch unit's net sales increased 4 percent, to $312.7 million, while comps decreased 4 percent. At the abercrombie division, net sales climbed 26 percent, to $79.5 million, and same-store sales gained 30 percent. At Hollister, net sales jumped 45 percent to $259.5 million and comps increased 13 percent.

Due to the strong results, the retailer estimates first-half EPS to be between $1.28 and $1.33, which compares with prior guidance of $1.23 to $1.28.

In addition, capital expenditures for the year are expected to be somewhere between $400 million and $420 million. The company said approximately $260 million of the spending is earmarked for "new store construction, store remodels, conversions and improvements to existing stores, with the remainder related to home office and distribution center investments."

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