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(Abercrombie & Fitch articles updated with additional analysis of the stock, updated stock prices, and analyst commentary.)



) -- Don't call

Abercrombie & Fitch

(ANF) - Get Abercrombie & Fitch Co. Class A Report

a recovery story -- or a buy -- just yet.

While the teen retailer easily topped Wall Street's forecast (excluding restructuring costs related to the closure of Ruehl) and is seeing margin improvement, without its gift card promotion, things would have been worse in the fourth quarter.

"With select early spring already marked down and CEO

Mike Jeffries charged with fixing merchandise himself, we're not expecting improvement until fall," UBS analyst Roxanne Meyer wrote in a note.

During the quarter, Abercrombie earned $47.5 million, or 53 cents a share, a 31% plunge from $68.4 million, or 78 cents, in the year-ago period for the teen retailer .

However, excluding charges related to the shuttering of the Ruehl chain, Abercrombie actually earned 91 cents, beating analysts' forecast of 87 cents a share.

In June, Abercrombie's board approved the closure of the Ruehl chain, which was sucking profit from the company.

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Abercrombie sales declined 5% to $936 million from $980.8 million, while same-store sales tumbled 13%.

During Abercrombie's conference call management hinted that it could attain 15% operating margin in three years. But Wall Street Strategies analyst Brian Sozzi does not believe this is possible given all the hurdles stacked against them.

Abercrombie is focused on international expansion It plans on opening its namesake store in Copenhagen, Denmark and Fukuoka, Japan during the year.

Given that international sales were 15% of fourth-quarter sales, this expansion could limit sales declines and support margins in 2010, Meyer wrote.

Abercrombie management also expects to roll out a Hollister flagship store in New York, as well as 30 mall-based stores internationally.

"Through a combination of international flagship Abercrombie & Fitch store openings, international Hollister mall-based openings and U.S. store closures, there is reason to believe that Abercrombie & Fitch's base of earnings will increase in 2010 and 2011, barring any economic shock," Sozzi wrote in a note.

As a result he upgraded the retailer to hold from sell and raised his price target on the stock to $37 from $26.

Shares of Abercrombie are rising 4.4% to $35.35 in morning trading.

-- Reported by Jeanine Poggi in New York.

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