Wall Street Journal
By Caitlin Nash
Abercrombie & Fitch Co. swung to a bigger-than-expected fiscal first-quarter profit as margins improved on more expensive sales abroad and lower average unit costs.
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. Earlier this month, the company said total sales jumped 22% to $836.7 million.
International sales continued their surge in the first quarter, growing 64%. International products command premium pricing, contributing to a 230 basis point gain in gross margin.
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.
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. The company has been gaining market share from its teen rivals since adopting a more promotional pricing approach.
But Abercrombie warned that it is expecting its margin to decline 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 growth was 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.
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.
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.
