Abercrombie's overseas revenue boosts it to profit

AP News
Posted: May 18, 2011 1:03 PM
Abercrombie's overseas revenue boosts it to profit

Preppy teen retailer Abercrombie & Fitch Co. says that international sales helped push it to first-quarter profitability.

Abercrombie said Wednesday that its quarterly net income was $25.1 million, or 28 cents per share, compared with a loss of $11.8 million, or 13 cents per share, in last year's first quarter.

The company, known for pricey clothing, suffered in the recession as people cut spending, but it has started to bounce back. Revenue at stores open at least a year rose 10 percent in February through April, compared with a year earlier. That's an important measure of a company's underlying health because it excludes recently opened or closed stores.

Overall revenue rose 22 percent to $837 million, helped by a 64 percent increase in international revenue and a 13 percent increase in the U.S.

Abercrombie, which also owns the Gilly Hicks, abercrombie and Hollister brands, is closing struggling stores in the U.S. but opening more locations overseas. Executives said they see strong growth particularly in the U.K., Germany and other parts of Europe. They held Wednesday's earnings call from Paris, because the chain is preparing to open an Abercrombie store on the Champs Elysees on Thursday.

Like its peers, Abercrombie has faced soaring cotton costs that could cut into its profit. But Brian Tunick, an analyst at JPMorgan Chase & Co., noted that the price of cotton started falling in early March, and he asked how that would affect profit margins.

Chief Financial Officer Jonathan Ramsden said it would "be a tailwind for us," but he added that "we don't know what is going to happen with price increases."

Abercrombie wants to persuade customers, who got used to deep discounts in the recession, to return to paying full price for its clothes. Ramsden noted that stores in tourist areas don't usually offer promotions.

Brian Sozzi, an analyst at Wall Street Strategies Inc., said he believes Abercrombie already has started raising retail prices. Abercrombie's spokesman wasn't immediately available for comment. The company did say its profit margins could be pressured by rising expenses.

Abercrombie also is seeking ways to trim costs. Besides closing stores, it is combining two U.S. distribution centers and doing some shipping by boat instead of airplane.

Excluding discontinued operations, Abercrombie said it earned 27 cents per share. Analysts expected 11 cents per share.

The company had fewer shares outstanding at the end of this year's first quarter than a year earlier, which helped increase its earnings per share. Abercrombie repurchased 428,800 shares of its common stock at a cost of approximately $25.5 million during this year's first quarter.

The company has been trying to reincorporate in its home state of Ohio _ rather than in Delaware, where many companies choose to incorporate because of favorable business laws _ to show commitment to Ohio.

The company canceled a shareholder vote on the matter this year, saying it didn't have enough support.