August 28 was not a good day to own shares of Abercrombie & Fitch (NYSE:ANF). Despite reporting earnings that trounced expectations, shares of the retailer fell around 5% on news that its revenue missed the $909.62 million analysts hoped to see. For the quarter, the retailer's top line came in at $890.61 million, 6% lower than the $949.70 million management reported the same quarter a year earlier. According to its press release, this drop in sales was driven largely by a 7% decline in Abercrombie & Fitch's comparable sales as its comparable store sales drop of 11% was partially offset by an 11% expansion in the business's direct-to-consumer comparable sales.
Although Abercrombie & Fitch fell short on sales, the business did quite well on an earnings front. For the quarter, the business reported earnings per share of $0.17. This represents a 21% jump over the $0.14 management reported the same quarter a year earlier and handily surpassed the $0.11 Mr. Market expected to see. Even though sales proved problematic, the company's bottom line grew because of a 7% drop in share count, combined with a decrease in its Stores and Distribution Expenses from 49.9% of sales to 47.9%.
|Earnings per Share||$0.14||$0.11||$0.17|
In a previous article I wrote on this business, I detailed how analysts were expecting dour performance for the quarter. While results came in lower than anticipated on the revenue side, profits handed investors a nice surprise. However, this doesn't mean that all is well with Abercrombie & Fitch. Yes, management did report profits that, for all intents and purposes, blew past forecasts, but if the company cannot see revenue pick up, then margin improvements (especially through cutting payroll like the retailer did) will only take the business so far.
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