Abercrombie Beats by a Penny; Looks to Expand Internationally

'Hip' teen and college retailer Abercrombie & Fitch Co. posted a penny earnings beat in Q3, sending its shares slightly higher (0.29%) in pre-market action Wednesday (as of 7:29 AM ET). Net income climbed 15% to $117.6 million, good for EPS of $1.29, versus EPS of $1.11 a year ago. Sales rose 12.8% Y/Y to $973.9 million. Analysts were, on average, expecting EPS of $1.28 on sales of $985 million. Same store sales rose 1% Y/Y and broke down as follows: namesake Abercrombie & Fitch chain stores rose 3% percent, while Hollister chain stores fell 1% and RUEHL chain stores sales were off 7% Y/Y. Gross profit margin was up 0.40% Y/Y to 66.2%. The company forecast second half EPS in a range of $3.63 to $3.67 (mid-point $3.65). Analysts were expecting second half EPS of $3.72 on average. In March Abercrombie opened its first European location in London; the company plans its first Japanese opening in Tokyo in 2009. In the earnings press release, CEO Mike Jeffries was upbeat in assessing Abercrombie's long-term growth prospects: "During the third quarter, Abercrombie & Fitch demonstrated its ability to consistently drive strong profits.... Our track record in this regard, combined with the excellent opportunity to expand our business both domestically and internationally, gives us confidence we will continue to produce outstanding financial results over the long term," (full earnings call transcript later today). But financial blogger TraderMark believes, "Any bounces in [retail stocks] are opportunities to short in my book... Christmas won't go away - the consumer is not dead. It's just going to be a consumer looking to buy even cheaper goods so someone's profit margins must suffer."

Sources: Press release, Bloomberg, MarketWatch, Reuters, AP
Commentary: Retail on Sale - Barron's • Retail's Dismal Performance a Reason to Short on Any Bounce • Cramer on ANF
Stocks/ETFs to watch: ANF. Competitors: AEO, GPS, JCG. ETFs: XLY, PEZ, VCR
Earnings call transcript: Abercrombie & Fitch F2Q07 (Qtr End 8/4/07)

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