Retail
Abercrombie & Fitch's ANF first-quarter earnings report was a head-scratcher. The teen-apparel retailer's earnings were in line with estimates, though sales were below expectations. Gross margin improved despite an increased amount of inventory and a drop in same-store sales. Either Abercrombie is incredibly well managed or its sales issues will cause some big headaches in the future. It could be both. Investors clearly liked the report, as shares of Abercrombie recently were up $1.88, or 2.3%, to $82.68. Despite a $7 million revenue shortfall, Abercrombie's first-quarter earnings of 65 cents a share matched analysts' average estimate, largely because of cost controls. The company highlighted cuts in expenditures such as travel and payroll at the corporate office. Abercrombie's executives were particularly proud of how the company managed expenses so as not to disappoint Wall Street, since they realized the top line would be below forecasts. I'm all for keeping a lid on costs and cutting fat, but companies shouldn't micromanage expenses in order to hit short-term targets. By cutting travel costs, I assume it didn't mean CEO Mike Jeffries flew coach. Hopefully, management didn't sacrifice long-term goals in order to save a few thousand dollars on various trips. What impressed me most about Abercrombie's report was the 20-basis-point rise in gross margin to an all-time first-quarter high of 65.6%. That margin growth came despite a 4% drop in same-store sales, or comps.
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