Profits grow as renewed brand helps Abercrombie
NEW ALBANY, OHIO— Taking a path at odds with other retailers who have slashed prices to lure customers through the door, Abercrombie & Fitch focused instead on reinvigorating its brand, and it paid off in the third quarter as profits more than doubled.
Investors who have been rattled by weak sales and dismal forecasts from the sector rewarded Abercrombie before the opening bell Friday, sending shares up 15 per cent.
“Our third-quarter results exceeded our expectations coming into the quarter and provide the strongest validation yet that our initiatives are working,” said executive chairman Arthur Martinez.
The shift in strategy can be seen in the company’s quarterly adjusted gross profit rate, which was 63.7 per cent. That’s an improvement of 120 basis points and 210 basis points on a constant currency basis over last year.
For the period ended Oct. 31, Abercrombie & Fitch earned $41.9 million (U.S.), or 60 cents per share. A year earlier it earned $18.2 million, or 25 cents per share.
The performance looked even better thanks to an improved tax situation, which turned into $5.9 million on the plus side this quarter. Last year, the company incurred an expense of approximately $9.6 million.
Earnings, adjusted for nonrecurring gains, were 48 cents per share. That blew past the per-share projections of 19 cents on Wall Street, according to a poll by Zacks Investment Research.
Revenue for the New Albany, Ohio, company totalled $878.6 million, also handily beating analyst expectations for $869 million.
Sales at stores open at least a year dipped 1 per cent. The metric is a key indicator of a retailer’s health because it excludes volatility from recently opened or closed stores.
But that decline in the current environment appeared palatable for investors. Late Thursday, Gap reported a 4 per cent decline at name brand stores and a 12 per cent decline at its Banana Republic locations.
Abercrombie’s Hollister locations led the way, where same-store sales rose 2 per cent, which offset some weakness at name brand stores.
Abercrombie & Fitch Co. anticipates fourth-quarter sales at stores open at least a year to be about flat.