Abercrombie & Fitch Q4 Profit Plunges, but Confident for 2012

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New Albany, OH—Although Abercrombie & Fitch’s fourth quarter earnings plummeted 79%, news that its international sales and its 2012 forecast helped send its shares higher today in early trading.

For the quarter ended Jan. 29, the teen specialty retailer said reduced gross margins and higher cotton prices pushed its net income down to $19.6 million, or 22 cents a share, compared with a year-earlier profit of $92.6 million, or $1.03 a share. Excluding one-time impairment charges and write downs, the retailer said it earned $1.12, matching average analyst estimate.

Net revenue was up 16% to $1.33 billion from $1.15 billion a year ago, also in line with analysts’ expectations. Total comparable sales were flat compared with 2011, down in both Abercrombie & Fitch and abercrombie kids, which were offset by a 2% increase at its Hollister stores.

Sales in the United States rose 4% to $962 million. And its international sales increased 62% to $366.6 million.

Gross margin fell 7.5 percentage points to 56.1% “driven primarily by an increase in average unit cost combined with lower than expected sales and higher markdowns driven by a more aggressive promotional environment than anticipated,” the company said. Warmer weather in many of its selling regions hurt sales of sweaters, fleece and other cold weather apparel and accessories.

“Our results for the fourth quarter were below our expectations in an extremely challenging environment,” said Mike Jeffries, chairman/ceo. “However, we are confident that we are on track with our long term strategy of leveraging the international appeal of our iconic brands to build a highly profitable, sustainable, global business.”

International Business ‘Very Strong’

Although Jeffries told analysts today that he is “cautious” on forecasting trends for the rest of 2012, he said the company was on track with its long range plans to expand globally. “The overall economics of our business in Europe, in our U.S. tourist stores and in our direct to consumer business remain very strong.”

In 2012, the company sees earnings in the range of $3.50 to $3.75 a share, higher than analysts’ average estimate of $3.47.

Abercrombie continues expansion plans during the year, opening five Abercrombie & Fitch flagship stores in Hamburg, Hong Kong, Munich, Dublin and Amsterdam. An abercrombie kids flagship store is planned in London. The Munich and Amsterdam locations will include an abercrombie kids store. The company expects to open nearly 40 Hollister stores internationally throughout the year.

Based on current new store plans and other planned expenditures, Abercrombie expects capital expenditures for 2012 to be approximately $400 million, predominantly related to new stores and investments in the distribution center and direct-to-consumer operations.

The company’s board also declared a quarterly cash dividend of 17.5 cents a share, payable on March 13 to shareholders of record on Feb. 27.


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