NEW YORK — Abercrombie & Fitch was able to increase its bottom line, but the ongoing sales drought has Michael Jeffries calling for drastic changes to the retailer’s design, merchandising and marketing strategies.

The firm posted a 1.6 percent net income gain on a 4.8 percent revenue gain — with same-store sales falling 11 percent — for the quarter ended Jan. 31. The chief executive told investors on a conference call that driving top-line volume is his single biggest focus for 2004.

“Our objective is to be the clearly dominate aspirational or luxury brand for each of our age groups,” Jeffries said. “To achieve this, our brands must be perceived by our target customer to be the coolest brands. The lifestyles portrayed must be compelling and authentic and our assortment must be right in terms of fashion. Our quality must be perceived as superior.”

Jeffries said after reviewing results over the past year, he didn’t believe A&F sufficiently distinguished the brands from the competition.

For the three months ended Jan. 31, profits inched up 1.6 percent to $94.3 million, or 96 cents a diluted share, which is a penny ahead of consensus analysts expectations. Last year, A&F reported earnings of $92.8 million, or 93 cents. Sales for the quarter rose 4.8 percent to $560.4 million from $534.5 million.

Seth Johnson, chief operating officer, said A&F’s markdown rate in the most recent quarter exceeded last year due to weaker-than-expected pre-Christmas business. As a result, he said A&F was aggressive in markdowns in the back half of January, which left it with a clean carry-over inventory position.

To help separate it from its peers, Jeffries said the firm will add premium price levels in key classifications to reinforce an image of quality. “The addition of premium classification will increase average retails, which I believe will both drive additional volume and position the brand at the right quality level,” Jeffries said.

Regarding advertising and marketing, Jeffries, acknowledging that the company “perhaps at times pushed the envelope too far,” said it was time for change.

Jeffries said the primary focus will continue to be in-store, but he also expects to use direct-mail and national magazine advertising for a targeted lifestyle message. He said advertising will be young, fun sexy and continue to represent aspirational college life. In addition, he said the firm does not intend to use direct-mail coupons or bounce-back coupons.“We have tried to be a little promotional and it doesn’t work,” he said. “Our customers do not come to us for price. The discounts have added minimal incremental volume.”

Jeffries also said the retailer expects to open four test stores, which are aimed at an older demographic, in August. Jeffries also said there would be changes made to the retailer’s design team with a series of promotions.

“I expect steady improvement in comps, but I do not expect it to happen overnight,” Jeffries told investors. Still, he said consumers have reacted to early spring merchandise sets.

The company said it is comfortable with the current consensus earning estimate of 26 cents a share for the first quarter, which would be on par with last year’s results. In 2004, A&F said it plans to open roughly 15 A&F stores, 10 Abercrombie stores and 85 Hollister stores with total square footage growing roughly 15 percent in 2004, the same rate of growth as in 2003.

For 2003, earnings increased 5.2 percent to $205.1 million, or $2.06 a share, compared with $194.9 million, or $1.94 in 2002. Full-year sales reached $1.71 billion, a 7 percent increase over the $1.6 billion in sales in 2002, but fell 9 percent on a comp basis.

The company also said it would be initiating a cash dividend at an annual rate of 50 cents a share.

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