CORRECT: Abercrombie Swings To Bigger-Than-Expected 1Q Profit
May 18 2011 - 12:55PM
Dow Jones News
Abercrombie & Fitch Co. (ANF) swung to a
bigger-than-expected fiscal first-quarter profit as margins
improved on international product offerings and lower average unit
costs.
Shares were recently trading up 3.2% at $75.48. Abercrombie's
stock has been on a hot streak, rising 97% in the past year. Sales
at the teen-apparel retailer began to recover in 2010, driven in
part by its international business, and the company has been
gaining market share from its teen rivals since adopting a more
promotional pricing approach.
International sales continued their surge in the first quarter,
growing 64%, and contributed to a 2.3 percentage point gain in
gross margin as international products command premium pricing.
And although rising raw material costs are a main concern facing
apparel retailers, Abercrombie's margin was aided by lower average
unit costs. The company said on its conference call Wednesday that
is primarily due to timing, having locked in pricing about six
months ago before the latest escalation in prices.
But Abercrombie warned that it is expecting margin to be down in
the second quarter as it doesn't plan to raise prices until the
third quarter. The company added that it still expects double-digit
cost increases for the fall season and there's significant
uncertainty about how higher ticket prices are going to be digested
by the consumer.
The company is targeting a mid-single digit same-store sales
increase in the second quarter, following a 10% rise in the first
quarter.
Abercrombie said on its call that same-store sales were
partially tempered by the events in Japan, which weighed on the
international same-store sales rate, and a fire that closed the
Abercrombie & Fitch store on Fifth Avenue in New York City
during the quarter.
For the quarter ended April 30, Abercrombie reported a profit of
$25.1 million, or 28 cents a share, compared with a loss of $11.8
million, or 13 cents, a year earlier. Earnings from continuing
operations were 27 cents in the latest quarter. Analysts polled by
Thomson Reuters had most recently forecast earnings of 12 cents a
share.
Gross margin climbed to 65% from 62.7%, reflecting the lower
average unit cost, favorable international mix, including foreign
currency impact, and other gross margin items, such as a freight
benefit.
Earlier this month, the company said total sales jumped 22% to
$836.7 million.
U.S. sales rose 13% to $641 million, international sales rose
64% to $195.7 million, and direct sales rose 32% to $105.8 million.
By brand, same-store sales rose 8% for A&F, 11% for Abercrombie
Kids and 11% for Hollister.
Abercrombie plans to open five international Abercrombie &
Fitch flagship locations in fiscal 2011 as well as up to 40
international mall-based Hollister stores, primarily in the latter
part of the year.
-By Caitlin Nish, Dow Jones Newswires; 212-416-2076;
caitlin.nish@dowjones.com
--Melodie Warner contributed to this article
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