Abercrombie cuts back on sales and it pays off in 3Q

AP News
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Posted: Nov 20, 2015 9:14 AM
Abercrombie cuts back on sales and it pays off in 3Q

NEW ALBANY, Ohio (AP) — Taking a path at odds with other retailers who have slashed prices to lure customers through the door, Abercrombie & Fitch focused instead on reinvigorating its brand and it paid off in the third quarter as profits more than doubled.

Investors who have been rattled by weak sales and dismal forecasts from the sector rewarded Abercrombie before the opening bell Friday, sending shares up 15 percent.

"Our third quarter results exceeded our expectations coming into the quarter and provide the strongest validation yet that our initiatives are working," said Executive Chairman Arthur Martinez.

The shift in strategy can be seen in the company's quarterly adjusted gross profit rate, which was 63.7 percent. That's an improvement of 120 basis points, and 210 basis points on a constant currency basis, over last year.

For the period ended Oct. 31, Abercrombie & Fitch earned $41.9 million, or 60 cents per share. A year earlier it earned $18.2 million, or 25 cents per share.

The performance looked even better thanks to an improved tax situation, which turned into $5.9 million on the plus side this quarter. Last year, the company incurred an expense of approximately $9.6 million.

Earnings, adjusted for non-recurring gains, were 48 cents per share. That blew past the per-share projections of 19 cents on Wall Street, according to a poll by Zacks Investment Research.

Revenue for the New Albany, Ohio, company totaled $878.6 million, also handily beating analyst expectations for $869 million.

Sales at stores open at least a year dipped 1 percent. The metric is a key indicator of a retailer's health because it excludes volatility from recently opened or closed.

But that decline in the current environment appeared palatable for investors. Late Thursday, Gap reported a 4 percent decline at name brand stores, and a 12 percent decline at its Banana Republic locations. Its Old Navy stores did much better, however.

Abercrombie's Hollister locations led the way, where same-store sales rose 2 percent, which offset some weakness at name brand stores.

Abercrombie & Fitch Co. anticipates fourth-quarter sales at stores open at least a year to be about flat.

The company's shares gained $2.96 to $22.45 before the market opened.

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Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on ANF at http://www.zacks.com/ap/ANF

The gross profit rate for the third quarter was 63.7%. Excluding certain items, the adjusted gross profit rate for the third quarter was 63.4%, reflecting an improvement of 120 basis points on a reported basis and 210 basis points on a constant currency basis over last year, primarily due to higher average unit retails coupled with lower average unit cost. Adjusted gross profit for the quarter excluded a benefit of $2.6 million related to higher than expected recoveries on the first quarter inventory write-down.

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Keywords: Abercrombie & Fitch, Earnings Report