Abercrombie Sees Flat Trend

The apparel giant squeezes solid profit out of flat same-store results.
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Updated from 9:36 a.m. EST

Abercrombie & Fitch

(ANF) - Get Report

beat the Street's bottom-line target for the third quarter, despite lackluster same-store sales, which are expected to carry into the holidays.

The New Albany, Ohio, clothing retailer posted earnings of $117.6, or $1.29 a share, for the period ended Nov. 3. Those numbers compare with a profit of $102 million, or $1.11 a share, in the year-ago quarter.

Analysts were looking for earnings of $1.28 a share, according to Yahoo Finance.

Sales were $974 million, a 13% increase over the same period last year, but comparable-store sales only improved by 1%. Analysts were looking for sales of $987 million.

Looking ahead at the fiscal fourth quarter, which includes the all-important holiday season, Abercrombie expects earnings of $3.63 to $3.67 a share. Analysts were looking for $3.67. The company says the low end of the guidance reflects flat same-store sales from last year.

The retailer is one among many that sees only modest sales gains during the holidays. Abercrombie benefited from a strong back-to-school season, followed by slowing sales as a result of warm temperatures in September and October that discouraged shoppers from stocking up on sweaters and outerwear. But aggressive inventory management helped keep margins in line.

"During the third quarter, Abercrombie & Fitch demonstrated its ability to consistently drive strong profits. This strong financial result reflects the broad strength of our brands and their ability to drive leading margins," CEO Mike Jeffries said in a press release.

Gross profit for the quarter was 66.2%, up from 65.8% last year. The company pointed to the benefits of some price hikes on its merchandise as well as lower losses from theft, which were partially offset by a higher markdown rate vs. last year.

With the teen brand starting to reach maturity in the U.S., the company is now turning its eye toward international expansion. Abercrombie opened a new store in London in March, reporting sales at its first European location that surpassed its flagship store performance on Fifth Avenue in New York.

The company is on track to open about one international store every two years, planning to grow conservatively, although that may eventually change given the initial results in London. It plans to open a store in Tokyo in late 2009, its first in Asia.

Abercrombie's Internet sales soared in the third quarter, up 48% to $61.3 million. Outlets bearing the Abercrombie name saw same-store sales go up 3% over the year-ago levels. Those same-store sales comparisons at its children's stores also grew by 3%. Hollister, on the other hand, fell by 1% while Ruehl dropped by 7%.

The company plans to continue its expansion plans, increasing its gross square footage by about 10% this year, primarily through the addition of six new Abercrombie & Fitch stores, 25 new Abercrombie stores, 58 new Hollister Co. stores, seven new RUEHL stores and four stores of the company's yet-to-be-named new concept.

Abercrombie shares were recently up $1.51, or 2.1%, to $74.30 in midday Wednesday trading.