NEW YORK Abercrombie & Fitch Co (ANF.N) posted a higher-than-expected quarterly profit as it avoided steep discounts over the holidays, and the company said it would lean more heavily on international markets for growth.
The teen apparel retailer also outlined plans to close weak stores that have dragged on profits, and its shares rose 4 percent.
Calling the retail environment in 2009 "very difficult," Chief Executive Mike Jeffries said Abercrombie intended to grow the business internationally.
The company's U.S. sales, accounting for the vast majority of its revenue, fell 12 percent in the fourth quarter, while international sales surged 86 percent.
The company operates about 1,100 stores around the world under its Abercrombie & Fitch, Abercrombie and Hollister Co chains. It plans to open about 30 mall-based Hollister stores internationally this year, as well as flagship stores in Copenhagen and Fukuoka, Japan.
Some investors have bet that a turnaround is taking hold at Abercrombie, which posted a surprise jump in January same-store sales after months of declines.
Bulls point to considerable international growth possibilities as a plus, but skeptics say the company needs to stabilize its domestic business and prove that it can still operate in a post-recession environment of lower prices and intense competition.
Jefferies & Co analyst Randal Konik said in a note that he believes the same-store sales declines have troughed and the company is "poised for a rebound in the coming months on smarter promotions."
But Brian Sozzi, analyst with Wall Street Strategies, cautioned that the once high-flying Abercrombie had a lot of work to do to fix its business.
"Their discounts were maybe not as big as feared, but the numbers are still bad," he said. "Many things have to go right -- the international stores have to roll out seamlessly and there is underlying softness in sales."
GROSS MARGINS SLIP
Abercrombie posted net profit of $47.5 million, or 53 cents per share, for the fourth quarter, ended on January 30, down from $68.4 million, or 79 cents per share, a year earlier.
Excluding one-time items, it earned 91 cents per share. On that basis, analysts on average had forecast 87 cents, according to Thomson Reuters I/B/E/S.
Revenue fell 4.6 percent to $936 million, below analysts' average forecast of $953.7 million. Sales at stores open at least a year, or same-store sales, fell 13 percent.
Gross margins slipped 1.1 percentage points because of unplanned markdowns on spring items that will go directly to clearance sales or outlet stores.
Same-store sales at its Hollister stores were the weakest, falling by 19 percent, while same-store sales at Abercrombie & Fitch stores were down 8 percent. The two chains accounted for about 87 percent of the company's sales during the quarter.
Chief Financial Officer Jonathan Ramsden estimated about 230 stores were underperforming and hurting margins. While he declined to say how many stores might be closed, he expects the total number of stores to remain stable in the next two years.
"Our plan is to address these stores through a combination of natural lease expirations, rent relief, and early closures for stores where we do not see realistic likelihood that they will return to profitability," Ramsden said.
The company closed 40 stores in the fourth quarter, including 29 in its Ruehl chain, and opened 24 stores, including 11 new U.S. stores.