Shares of Abercrombie & Fitch Co. jumped more than 7 percent Wednesday after the teen specialty retailer reported that aggressive promotions helped it boost sales and nearly double fourth-quarter profits.
However, analysts worried that, with double-digit cost increases set to take hold later this year, the company might not be able to sustain the demand for its relatively higher-priced apparel.
For the three months ended Jan. 29, net income rose 95.1 percent to $92.6 million, or $1.03 a diluted share, compared with income of $47.5 million, or 53 cents a share, in the year-ago quarter. Stripping out impairment charges and costs related to the closure of the Ruehl division, EPS totaled $1.38, 6 cents above the $1.32 consensus estimate carried by Yahoo Finance.
Sales grew 22.8 percent to $1.15 billion versus $936 million a year earlier. Comparable-store sales jumped 13 percent, bolstered by a 13 percent comp rise at both A&F and Hollister. The retailer’s kids’ division turned in a 9 percent comp increase.
Shares landed at $57.46, up $4.05 or 7.6 percent.
Growth abroad should help offset rising prices, but the ultimate effects remain to be seen, the ceo said.
“As we sit here today, we are anticipating double-digit cost increases for the fall 2011 season,” said chairman and chief executive officer Michael Jeffries on the company earnings call. “In response to this, we do expect to increase our tickets and our gross margin rate will also benefit from the continued growth of our international business. However, there is significant uncertainty about how these different effects will balance out in terms of their impact on our overall gross margin beyond the spring season.”
Craig Johnson, president of Customer Growth Partners, said, “I don’t think they will be able to sustain even a 10 percent increase in pricing…because consumers will say goodbye. There are a host of choices out there that are today’s news versus Abercrombie, which is, for a lot of kids, yesterday’s news.”
For the year, the company’s income expanded to $150.3 million, or $1.67 a diluted share, from $254,000, or zero cents, in 2009. Sales gained 18.4 percent to $3.47 billion, compared with $2.93 billion.
Abercrombie disclosed that it hopes to reopen its Fifth Avenue A&F flagship in New York next week. The store was closed last week due to a fire.