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A&F´s shares down by 11% after 3Q´s $50.9 million

By FashionUnited


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Abercrombie & Fitch Co. reported unaudited results which reflected net income of $50.9 million and net income per diluted share of $0.57 for the thirteen weeks ended October 29, 2011, lower than expected y market, what sent its shares

down by nearly 11%.

"While our results for the third quarter were impacted by costing challenges combined with greater uncertainty in the macroeconomic environment, we remain very confident in our strategy, the underlying strength of our brands and our ability to create long-term shareholder value. Our focus remains on execution against our long-term strategy and roadmap objectives,” advanced Mike Jeffries, Chief Executive Officer and Chairman of the Board of Abercrombie & Fitch Co.

But its earnings were short of Wall Street expectations. Third-quarter profit rose slightly, reaching $50.9 million, or 57 cents a share, from $50 million, or 56 cents, earned in the same period a year earlier. Analysts had expected profit of 70 cents a share, according to the consensus of estimates as compiled by FactSet Research.

Therefore, its shares tumbled almost 11 per cent in premarket trading, or $5.92 to $49.78. The stock is down 3 per cent since the beginning of the year. Meanwhile, the shares lately fell 13% to $48.68 while American Eagle Outfitters Inc. summed up 3.59% and Aeropostale Inc. added 3.4%.

As reported by MarketWatch, analysts said they were also concerned about the company’s 33% increase in inventory. BMO Capital Markets cut its rating on Abercrombie to market perform from outperform: “We now see greater gross margin deterioration than we previously anticipated and believe the pace of margin recovery will take longer than expected, particularly given management’s aggressive promotional stance in the domestic channel,” said analyst John Morris. “A weakening macro picture in Europe casts a cloud of uncertainty on the earnings power of [Abercrombie’s] international business in the near term, especially as the company is still finding its footing there with respect to pricing.”

Net sales for the thirteen weeks ended October 29, 2011 increased 21% to $1.076 billion from $885.8 million for the thirteen weeks ended October 30, 2010. U.S. sales, including direct-to-consumer sales, increased 14% to $820.2 million. International sales, including direct-to-consumer sales, increased 56% to $255.7 million. Total Company direct-to-consumer sales, including shipping and handling, increased 41% to $132.4 million.

Total comparable store sales for the quarter increased 7%. By brand, comparable store sales increased 4% for Abercrombie & Fitch, 6% for abercrombie kids, and 8% for Hollister Co. Total sales by brand were $436.1 million for Abercrombie & Fitch, $104.2 million for abercrombie kids and $518.0 million for Hollister Co. The gross profit rate for the third quarter was 60.1%, 360 basis points lower than last year's third quarter gross profit rate. The decrease in the gross profit rate was driven primarily by an increase in average unit cost combined with an approximately flat AUR.

Stores and distribution expense, as a percentage of net sales, decreased to 42.9% from 43.5% for the third quarter last year. Executives at A&F explain the decrease as the lower store occupancy costs as a percentage of net sales.

The sexy youngster apparel brand expects to open two domestic stores in Fiscal 2011 and expects to close approximately 55 to 60 domestic stores through natural lease expirations, primarily at the end of the year. Besides, they expect total capital expenditures for Fiscal 2011 to be approximately $350 million.

With regards to its international expansion, A&F is to continue its investment to open new Abercrombie & Fitch flagships in Amsterdam and Munich in 2012. These are in addition to the previously announced Abercrombie & Fitch flagships in Hamburg and Hong Kong. At the end of the third quarter, the company operated a total of 1,092 stores. For the ending of the year, they will be opening flagships in Madrid on November, and in Dusseldorf, Brussels and Singapore in December. The company expects also to open 40 international mall-based Hollister stores, of which 25 had opened as of October 29, 2011.