By Andria Cheng
NEW YORK (Dow Jones) -- Shares of Abercrombie & Fitch Co.
surged Friday, as investors reacted favorably to financial results
that showed the teen retailer reducing operating expenses and
generating stronger-than-anticipated receipts in post-Christmas
sales.
Fourth-quarter net profit tumbled 68%, hurt by lower sales and
costs to write down assets, New Albany, Ohio-based Abercrombie
& Fitch (ANF) said.
On a conference call, CEO Mike Jeffries and other executives
said the company's priorities for the new year include "preserving
cash," expanding internationally while scaling back domestic
expansion, and continuing to seek ways to curtail costs and
lowering inventory level to be in line with restrained sales.
Profit fell to $68.4 million, or 78 cents a share, for the three
months ended Jan. 31, down from $216.8 million, or $2.40 a share,
earned in the year-earlier fourth quarter.
Quarterly sales also fell, down 19% to $998 million, with
comparable-store sales declining 25%.
Net profit result included a 21-cent charge to write down
store-related assets and another 11-cent charge tied to execution
of Jeffries' new employment contract.
Excluding one-time items, Abercrombie & Fitch would have
earned $1.10 a share, which it said exceeded its own
projection.
Analysts, on average, had estimated the company would earn 93
cents a share, according to FactSet Research.
Abercrombie, whose stock had lost 74% of its value in the past
year, jumped 11% in early morning trading.
"Management is proactively managing expenses and cutting
unnecessary growth accordingly," said Credit Suisse analyst Paul
Lejuez, who has an outperform rating on the stock. "While the
selling and macro environment remains weak, we continue to believe
the current stock price already reflects an overly pessimistic
scenario."
The teen clothing retailer also said it's not providing a profit
forecast for this year because it sees a difficult selling
environment to persist throughout 2009 and said there may be
significant volatility in sales levels.
Sales at stores open at least a year declined at least 20%
across the company's various chains, from Abercrombie & Fitch
to Hollister.
The company has been hurt by its position not to discount
in-season products in an environment where shoppers are lured by
steep discounts offered by other retailers, leading its sales
performance to lag rivals such as American Eagle Outfitters Inc.
(AEO) and Aeropostale Inc. (ARO), analysts have said.
"The fourth quarter of 2008 will go down in history as one of
the biggest retail nightmares," Jeffries said on the call. "It
certainly will for me. We saw malls dominated by promotional
activity, consumers who continued to show reluctance to spend,
especially for premium brands, and unprecedented volatility in the
economy."
As it continues to watch costs, the retailer said it's still on
track to open flagship shops this year, including Hollister Co. in
Soho, Abercrombie & Fitch and abercrombie in Milan and
Abercrombie & Fitch in Tokyo.
Gross profit narrowed by 2.8 percentage points to 64.4% in the
latest quarter, hurt by increased discounts to clear seasonal
inventory, the retailer said.