Abercrombie Q3 adjusted profit beats, cuts outlook


NEW ALBANY, Ohio–Abercrombie & Fitch, like many teenagers it caters to, is struggling to find its niche.

A major overhaul of its business has yet to bear fruit, as sales kept falling in the company’s third quarter and it lowered its full-year earnings forecast Wednesday.

Despite the challenges, many investors were pleased with the earnings beat and sent shares of Abercrombie & Fitch Co. up nearly 3.5 percent to US$28.81.

The teen retailer was once a powerhouse with its preppy, logo-heavy look. But tastes change and teenagers began to favor standing out over fitting in. They also began going to the mall less and when they did shop, opted instead for the affordable fast-fashion looks that competitors like H&M offer.

Abercrombie’s sales suffered, and it has started to try to reshape itself. It reduced the use of logos in its clothes, increased its emphasis on online shopping and shifted its management to lead the company in a new direction.

The New Albany, Ohio-based company said that its total revenue fell to US$911.5 million from US$1.03 billion for the quarter that ended Nov. 1. That fell short of the US$916.7 million that analysts surveyed by Zacks Investment Research expected. And sales at stores open at least a year, a key gauge of a retailer’s health as it excludes recently opened and closed stores, fell 10 percent.

Abercrombie earned US$18.2 million, or 25 cents per share, for the quarter versus a loss of US$15.6 million, or 20 cents per share, a year ago. Stripping out certain charges, earnings were 42 cents per share. That beat analyst estimates by a penny.

The company �X whose brands include Abercrombie, Hollister Co. and Gilly Hicks �X now anticipates earning between US$1.50 and US$1.65 per share for the year. That’s down from its prior forecast of US$2.15 to US$2.35 per share.

Analysts polled by FactSet were anticipating full-year earnings of US$1.83 per share.

The company said it saw a strong start to the holiday season, but executives said they remained cautious given a tough environment for teen retailers overall.

Stifel analyst Richard Jaffe said in a research note that it is taking the retailer longer than expected to win back customers, despite its improved fashion.

He said the company’s strategy to move away from its logo-based apparel is a good one for the long run but is holding back sales in the short term. He also noted that the company is facing a tough retail environment in Europe, where warm weather and a still difficult economy are hurting sales.

Abercrombie is not alone in its struggle. Competitor Aeropostale Inc. also reported Wednesday after markets closed that it widened its third-quarter loss on weaker sales. Its stock slid nearly 8 percent in after-hours trading.