UPDATE: Abercrombie & Fitch 4Q Profit Almost Doubles On Sales

Abercrombie & Fitch Co.'s (ANF) fiscal fourth-quarter profit jumped 95%, as the apparel retailer reported sharply higher international sales and continued regaining ground it lost in the U.S. to lower-priced teen retailers during the recession.

Abercrombie & Fitch, which struggled through much of the economic downturn by refusing to lower prices, credited its strong results, in part, to adopting a more promotional pricing approach and continuing to carry merchandise that retains significant appeal. But executives, like other apparel retailers, said higher prices are on the way because of greatly increased raw material costs.

Chief Executive Michael Jefferies, on a conference call with analysts, indicated that it expects double-digit cost increases for the fall 2011 season. To help protect gross margin, Abercrombie & Fitch plans to raise prices and also sees continued growth of its international business assisting.

But even the retailer itself doesn't know where costs are going because conditions are so in flux. "We're taking a stance that is almost week by week what's happening as we are raising prices," Jefferies said.

While U.S. operations show more maturity, with domestic same-store sales rising 7% for the year, it is Abercrombie's overseas operations that are really taking off, seeing 79% growth over the same period and many more store openings planned. The growth trajectory shows overseas stores making up 20% of sales, a figure expected to be around 30% in 2012. The company is using a combination of its different types of stores for the growth, and said it is accelerating openings for its namesake and Hollister stores overseas.

Abercrombie & Fitch is also planning to close another 50 domestic stores in 2011, following 64 in 2010, which analysts say basically gets rid of the lowest 10% of performers from the company's store base. The retailer also announced it is consolidating its two distribution centers, which could help efficiency.

The company also accelerated its share buybacks in the fourth quarter, with 900,000 shares repurchased, compared with roughly 700,000 in the third quarter.

In its direct-to-consumer business, Abercrombie & Fitch saw sales grow 41% for the year, crediting significant strength in both its domestic and international business. The retailer "added significant resources to our direct-to-consumer group during the year, improved the shoppability of our sites" and continued to add new country specific sites, Jefferies said.

"I see an accelerating U.S. business, margin stabilization and international sales at a tipping point, which likely means substantial sales, EPS and stock upside this year," said Randal Konik, retail analyst at Jefferies.

Sales at the high-priced teen-apparel retailer began to recover in 2010 from poor year-earlier results, partly driven by international sales. In the fourth quarter, sales abroad rose 61%, while domestic sales increased 16%.

Abercrombie has also been gaining market share since it lowered prices, but the company reported a worse-than-expected same-store sales decline in January. Abercrombie reported monthly sales figures for the last time this month, joining other retailers that have ended the practice, supposedly to remove volatility from investors' decisions.

For the quarter ended Jan. 29, Abercrombie & Fitch posted a profit of $92.6 million, or $1.03 share, up from $47.5 million, or 53 cents a share, a year earlier. Excluding store asset impairment and other charges, adjusted earnings were $1.38 a share, up from 91 cents.

Analysts polled by Thomson Reuters most recently predicted per-share earnings of $1.32.

Gross margin edged up to 63.6% from 63.5% compared with the company's forecast for a decline in line with the third quarter's 40 basis point drop. Inventory ended the quarter in line with sales, a goal many retailers are aiming for.

The company said earlier this month that net sales jumped 23% to $1.15 billion, following last year's 4.6% drop. Same-store sales rose 13%, while direct-to-consumer revenue, which includes Internet and catalog sales, increased 43%.

Shares are up 6.7% to $57.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com

--Drew FitzGerald contributed to this article.

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