(Analyst commentary and stock update added.)



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Abercrombie & Fitch

(ANF) - Get Report

, like a once-popular high school student kicked out of its clique, has a ways to go to get back into the inner circle.

The specialty retailer swung to yet another loss in the second quarter, as its sales continue to lag at all of its retail chains.

But investors seem to be a little more forgiving then Abercrombie's shoppers. An unexpected tax charge related to the closing of Ruehl weighed down earnings, and buyers were relieved to see that, excluding these charges, the loss was less than expected.

Even as the rest of the

retail sector was awash in red

, shares of the company jumped 4% in afternoon trading to $34.37.

During the quarter, Abercrombie recorded a loss of $26.7 million, or 30 cents a share, compared with a profit of $77.8 million, or 87 cents, in the year-ago period. Analysts expected a much smaller loss of 7 cents a share.

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Results included $24.4 million in charges for the closure of its Ruehl chain. Management expects the closure will result in $65 million in costs, including the costs realized in the second quarter.

Sales sank 23% to $648.5 million from $845.8 million, while total same-store sales took a 30% hit. By division, comparable sales tumbled 27% at namesake stores, 29% at Abercrombie, 33% at Hollister and 31% at Ruehl.

In an effort to retain its premium-brand image, Abercrombie had taken a firm public stand against lowering prices amid the recession, but management was forced to turn down its nose when lower-priced retailers like



began picking up market share.

Abercrombie now says it's lowering its average selling price. While its promotional strategy has been minimal -- such as an e-mail blast featuring attractive denim prices -- expect to continue to see such promotions until the retail environment improves, Jennifer Black, retail analyst of the firm bearing her name, wrote in a note. Abercrombie has also been freshening up its merchandise assortment, as the consensus in the retail world is that the company missed last year with dresses.

"We expect to see more fashion merchandise and fewer basics in the mix going forward, as customers will pay full price for compelling fashion, and that is the goal," Black wrote.

If all else fails, Abercrombie will at least have its international business. The company is on track to open three flagship shops in Milan and Tokyo, as well as 10 mall-based locations in Canada, the U.K., Germany and Italy.

"We continued to be confronted with very challenging conditions during the second quarter," Jeffries said in a statement. "We believe we are doing the right things to address those challenges and improve our domestic business. In the meantime, we remain very encouraged by our prospects for international growth."

"The company is still very early in its international expansion and we see continued international store roll outs for many years to come," Black wrote. "We believe this more than compensates for the lack of unit growth in the U.S."

-- Reported by Jeanine Poggi in New York.

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