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Abercrombie & Fitch net income falls in third quarter as weak sales persist
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NEW YORK - Preppy clothing seller Abercrombie & Fitch Co. will add new items at lower prices and continue expanding internationally — where sales are stronger than the U.S. — to combat declining profit as the U.S. economy remains weak.
The company reported Friday that its third-quarter profit fell 39 percent, but that was less than expected and investors pushed shares up 7 percent. Revenue fell 15 percent.
Abercrombie & Fitch's sales have slumped, and it has lost market share to lower-priced competitors such as Aeropostale Inc. as it kept prices high and invested abroad during the recession.
In recent quarters it has bowed to the recession and begun marking down items, but CEO Mike Jeffries said Friday that the company plans to add lower-priced inventory in the first quarter, rather than relying on markdowns that he said might hurt its image.
"We are aspirational brands for our customer but are reacting to the current environment and trying to improve the domestic sales trend," said Jeffries. "Domestically, as you all know, we are seeing that the customer is extremely deal-driven, price-conscious, and we are aware of that."
During the quarter, knit tops, graphic tees and denim were weak sellers compared with dresses and woven shirts for both men and women.
Profit for the three months that ended Oct. 31 fell to $38.8 million, or 44 cents per share, or 30 cents per share excluding one-time items. That beat the average expectation of analysts surveyed by Thomson Reuters for adjusted earnings of 20 cents per share.
Revenue fell to $765.4 million, squeaking past analyst expectations of $764.5 million. Expenses fell 16 percent.
Sales in stores open at least a year, a key measure of a retailer's health, dropped 22 percent.
Weak domestic results were offset by direct-to-consumer sales and sales at new stores, particularly international stores.
CFO Jonathan Ramsden said sales were in line with the first two quarters of the year and Abercrombie does not expect sales in the fourth quarter — which includes the important holiday season — to vary much from the company's weak sales over the past two years.
Abercrombie continued to expand internationally, opening stores in Italy and the U.K. The company plans to step up international openings, particular of Hollister brand stores, over the next two years.
Abercrombie also said it could close some underperforming stores.
Shares rose $3.92, or 10.7 percent, to close at $40.68 after hitting a 52-week high of $40.95 earlier in the session.
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