Updated from 4:46 p.m. EST

Preppy outfitter

Abercrombie & Fitch

(ANF) - Get Report

posted a 79% jump in third-quarter earnings Tuesday, blowing away estimates and raising profit estimates for the year. Still, inventory concerns persisted.

The clothing chain posted earnings of $71.6 million, or 79 cents a share, for the quarter, up from $39.9 million, or 42 cents a share, in the same quarter last year. Those results include a charge of 9 cents a share related to the severance package for departed executive Robert Singer. Minus the charge, its earnings came to $79.8 million, or 88 cents a share.

On that basis, Abercrombie handily beat Wall Street's consensus estimate calling for earnings of 80 cents a share. Shares of Abercrombie were up $1.99, or 3.5%, to $58.88 in extended trading after shedding 4.4% during the regular session.

Based on the results, the retailer pumped up its earnings estimate for the year to a range of $3.44 to $3.49 a share. Previously, it was expecting earnings of $3.10 to $3.30 a share. Analysts had estimated 2005 earnings at $3.30 a share.

Abercrombie's sales rose 35% to $704.9 million for the quarter, up from last year's $520.7 million, on a same-store sales gain of 25% for the quarter.

Abercrombie's gross margin rate rose 140 basis points to 66%. It attributed the increase to "improved initial markup combined with a lower markdown rate versus last year."

Inventory levels remained high, totaling $416 million at the end of the quarter, up from $211 million at the same time last year. A similar increase inspired selling in shares of Abercrombie after the third quarter, when it reported that inventories increased to $364 million from $227 million, primarily reflecting a jump in denim merchandise.

Analysts, worried about the risk of a "denim glut" going into the holiday season, viewed the numbers as possible confirmation that their concerns were well-founded. The teen-apparel industry has long been riding a strong denim fashion cycle, and some observers fear the trend may be fading and retailers will be stuck making big markdowns on their denim stocks.

On a conference call following Tuesday's earnings release, Abercrombie Chairman and CEO Mike Jeffries promised analysts they would see "increased efficiency" in the future as far as denim inventory management was concerned. Still, he insisted that Abercrombie made no mistakes in buying denim.

"These are the inventories we planned for," Jeffries said.

The company's chief financial officer, Michael Kramer, said Abercrombie was "long in denim," noting that its inventories of the material peaked on Nov. 1. "There is not a significant markdown risk in denim," he added.