WWD.com/business-news/financial/abercrombie-profit-drops-comps-down-22-2370645/
government-trade
government-trade

Abercrombie Profit Drops 39.3 Percent

Abercrombie & Fitch Co.'s third-quarter net income fell to $38.8 million.

Abercrombie & Fitch Co. saw its shares soar more than 10 percent Friday as a 39.3 percent decline in third-quarter profits still left it comfortably ahead of Wall Street estimates.

This story first appeared in the November 16, 2009 issue of WWD.  Subscribe Today.

The New Albany, Ohio-based firm said for the three months ended Oct. 31, net income slid to $38.8 million, or 44 cents a diluted share, from $63.9 million, or 72 cents, in the year-ago quarter. Excluding extraordinary items, the company earned 30 cents a share in the most recent quarter, well ahead of the 20 cent profit consensus provided by Yahoo Finance.

Net sales fell 14.6 percent, to $765.4 million from $896.3 million, and were off 22 percent on a comparable-store basis.

The company said international store sales were roughly $61 million for the quarter and that further expansion outside the U.S., combined with lower price initiatives, would help it regain its top-line momentum.

Despite the rough sales record, investors lifted the retailer’s shares $3.92, or 10.7 percent, to $40.68. The stock established a new 52-week high of $40.95 in intraday trading.

By division, A&F, which posted sales of $324.3 million, had an 18 percent decrease in comps, as its West Coast-inspired concept Hollister & Co. registered revenue of $333.4 million and a 26 percent drop in comps. The chain’s children’s brand, abercrombie, brought in sales of $90.8 million and a 22 percent comp dip, while Ruehl, the company’s collegiate concept to be shuttered at the end of the fiscal year, reported sales of $11.7 million and a comp decline of 30 percent.

For the nine months, the retailer swung to a loss of $47.2 million, or 54 cents a diluted share, versus a profit of $203.8 million, or $2.27 a share. Revenue for the period contracted 20.3 percent to $2.03 billion.

“We are aspirational brands for our customer, but are reacting to the current environment and trying to improve the domestic sales trend,” said chairman and chief executive officer Michael Jeffries on the company call. “Domestically, as you all know, we’re seeing that the customer is extremely deal driven, price conscious, and we are aware of that. Our strategy has been to increasingly offer specially targeted attractive price points…our brands, again as you know, are not positioned to compete on price and price alone and it is not our desire to change that.”

Although Jeffries admitted “the future of our business is tied to international growth,” the company’s domestic positioning is also related. The ceo said the company would strengthen its inventory position, as well as its marketing for the spring. Additionally, the firm said it would offer specially targeted price points, particularly at Hollister, and would evaluate its domestic real estate footprint, notably at A&F, while working to improve its fashion content across all its brands.

Nonetheless, Jonathan Ramsden, executive vice president and chief financial officer, said in the next few weeks, “it’s going to continue to be a very aggressive and promotional environment,” and average unit retail is expected to be “down a good bit compared to the fourth quarter of last year.”