NEW YORK — Abercrombie & Fitch, a specialty retailer known for its preppy yet racy fashion, managed an increase in its third-quarter net income due to margin improvement, despite a drop in comparable-store sales.

This story first appeared in the November 12, 2003 issue of WWD. Subscribe Today.

For the three months ended Nov. 1, the New Albany, Ohio-based firm said net income rose 5.8 percent to $50.5 million, or 51 cents a diluted share. Earnings were at the upper end of its own forecasts of 49 to 51 cents and matched Wall Street’s consensus estimate. Last year, A&F reported income of $47.7 million, or 48 cents.

Overall sales for the quarter rose 6.1 percent to $445 million from $419.3 million, although same-store sales slipped 9 percent. By business, A&F’s comps fell in the low double digits and Hollister rose in the high single digits. Inventories ended the quarter down 2 percent.

Transactions per store fell 15 percent; the average transaction value improved 3 percent.

“I am pleased with the financial performance for the third quarter,” Mike Jeffries, chairman and chief executive, said on an afternoon conference call. “Our business remains solid and I feel confident we are well positioned for Christmas. However, with the environment still challenging, we remain disciplined in our approach to managing the business.”

The results were reported after the markets closed Tuesday. Earlier in the day, the stock closed at $28.83, up 97 cents, or 3.5 percent.

By business, Jeffries said the men’s business remains “very tough” and noted he does not see evidence of a turnaround. He sees the opportunity for holiday in the women’s business, which accounts for two-thirds of revenues. With outerwear disappointing, Jeffries expects knits, fleece, sweaters, jeans, sleepwear and underwear to be key performing categories.

Hollister, A&F’s younger, more California-oriented sibling, continues to perform well with 70 percent of the business being generated by females. The average transaction value rose 9 percent; transactions per average store was flat.

While Jeffries was happy with the third-quarter results, he cautioned investors the holiday selling season could wind up flat.

“Although I am optimistic about our holiday assortment,” he said, “it is very difficult at this point to predict the level of demand for the fourth quarter.”

A&F, which operates 651 stores, said it plans to open five A&F stores and 43 Hollister units in the fourth quarter, for a yearend total of 703 stores. In 2004, it said it is targeting 110 new stores.

Looking ahead, the company said it will continue to manage the business conservatively, with a focus on protecting the bottom line, and is anticipating earnings to be flat with last year when it reported earnings of 93 cents. However, the current First Call estimate is $1.

For the nine months, income grew 8.5 percent to $110.8 million, or $1.11 a diluted share, compared with income of $102.1 million, or $1.01, for the same period last year. Sales strengthened 8.1 percent to $1.15 billion from $1.06 billion.

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