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Soft Spots at Abercrombie

Earnings are in line, but the retailer's guidance comes up a bit short.

Abercrombie & Fitch

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

posted a 20% increase in fourth-quarter income, matching estimates, but the teen-apparel seller cautioned of potentially soft earnings in the first half of the year.

Shares were slipping $2.85, or 3.5%, to $79.15 in after-hours trading.

For the quarter ended Feb. 3, the company's earnings rose to $198.2 million, or $2.14 a share, from $164.6 million, or $1.80 a share, a year earlier. Analysts polled by Thomson Financial expected earnings of $2.14 a share.

Sales increased 18% to $1.14 billion, but same-store sales, or sales at stores open at least a year, dropped 3%.

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For the year, Abercrombie earned $422.2 million, or $4.59 a share, up from $334 million, or $3.66 a share, a year earlier.

Looking ahead, the company expects income in the first half of 2007 to be in the range of $1.47 to $1.52 a share, a 10% to 13% increase over the first half of fiscal 2006. The forecast allows for some downside to Wall Street's current target of $1.52 a share.

Due to costs from opening its first European store, along with the difficult comparisons to last year's tax rate favorability, Abercrombie said it expects first-quarter earnings growth to be in the mid-single digit range.

Analysts are expecting earnings of 69 cents a share, which would represent 11% growth from 62 cents a year earlier.

The low end of the guidance reflects a flat same-store sales scenario for the first half of the year, the company said.

For fiscal 2007, the company expects to increase gross square footage by about 12%, primarily through the addition of six new Abercrombie & Fitch stores, 67 new Hollister stores, 27 new abercrombie stores and 10 new Ruehl stores. The company also intends to introduce its next concept in January 2008, with the opening of three stores.

At the end of fiscal 2006, the company operated 357 Abercrombie & Fitch stores, 177 abercrombie stores, 390 Hollister Co. stores and 14 Ruehl stores in the U.S., as well as three Abercrombie & Fitches and three Hollisters in Canada.