By and  on February 20, 2002

NEW YORK -- Abercrombie & Fitch said tightly managed inventories and expenses helped it report a 2.5 percent increase in fourth-quarter profits and beat Wall Street expectations.

The New Albany, Ohio-based retailer of American-inspired sportswear said profits reached $79.2 million, or 78 cents a share, for the quarter ended Feb. 2. That compares with income of $77.2 million, or 76 cents, for the year-ago quarter.

Sales rose 6.2 percent, to $466.6 million from $439.4 million, while comparable-store sales decreased 9 percent. Women's comps were flat while men's comps were down in the double-digits. Top sellers were jeans, graphic T-shirts, skirts, gymwear and lingerie. Mike Jeffries, chairman and chief executive, said in an afternoon conference call, "The fourth quarter was a huge challenge. Clearly, our successes could not have been achieved without a commitment of protecting the bottom line and protecting the brand." A&F, in reporting a 14 percent drop in January comps, said that it expected to exceed its previous earnings guidance of 70 cents a share. The retailer also managed to beat analysts' expectations by 6 cents.

To compete with competitors during the highly promotional fourth quarter, A&F added a number of volume-driving promotions including direct mail and bounce-back coupons and select price point reductions. To insulate its bottom line, inventories were reduced 30 percent. Still, the unusual couponing hurt comps during the quarter

Looking ahead, Jeffries said although he is "encouraged" by initial spring selling, he expects a continuation of the difficult retail environment in the first half of 2002. He said the company is building inventory and it is comfortable with the EPS estimates that see its first two quarters flat with last year. "I am enthusiastic about the product, the stores look great, the fashion is right and the organization has never been stronger," Jeffries said.

The 491-unit chain plans to open 40 A&F adult stores, 30 kids units and 60 Hollister stores in 2002 for a 22 percent increase in square footage.

For the year, income rose 6.7 percent to $168.7 million from $158.1 million last year. Sales increased 10.3 percent to $1.36 billion from $1.24 billion last year, but fell 9 percent on a comp basis.In a separate development, American Eagle Outfitters prevailed again in a legal dispute involving A&F over trade dress infringement and unfair competition issues. The U.S. Court of Appeals for the Sixth Circuit on Friday affirmed a decision by a federal district court in Cincinnati to dismiss the June 1998 lawsuit filed by A&F.

Roger Markfield, president and chief merchandising officer of American Eagle, stated, "We have said from day one that this suit was frivolous and an unfortunate waste of our time and our stockholder's money. Certain basic, classic American themes of dress are out there in the mainstream, and the courts have again said no single company can own them exclusively."

As reported, A&F had charged American Eagle with unfairly copying the look and wording of some of its garments. A&F claimed that the words, colors and format in American Eagle's offerings were too similar to those on A&F's apparel and in its catalog, and confused consumers.

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