* Expects higher full-year profit than analysts estimate
* Sees $2.85-$3.00 per share for year, vs estimated $2.48
* Earned 87 cents a share in third quarter vs 59 cent
* Shares jump as much as 30 percent
(Adds CEO, analyst comments)
By Nivedita Bhattacharjee
Nov 14 Teen clothing retailer Abercrombie &
Fitch Co stunned investors on Wednesday with
unexpectedly improved third-quarter results and a full-year
outlook that exceeded Wall Street forecasts, sending shares up
as much as 30 percent.
The company got a handle on excess inventories that had
sparked a round of discounting that worried investors. It also
had pockets of sales strength in places like Scandinavia and
China that helped revenue exceed expectations. Even troubled
markets like Spain were not as bad as expected.
Abercrombie & Fitch was "being highly disciplined" with
inventory management, and was working to ensure sales growth
outpaced that of inventory, Chief Executive Mike Jeffries said
on a call with analysts Wednesday.
The company ended the quarter with total inventory that was
21 percent lower than a year ago.
Shares of the company, which hired Goldman Sachs Group Inc
in September to help ward off pressure from investors,
were up 28 percent at $40 in afternoon trading on the New York
Stock Exchange. The stock has lost about a third of its value
since hitting $57.56 a year ago.
Roxanne Meyer, an analyst at UBS Securities, said the rally
in the stock was due to covering of short positions by traders.
According to Markit's Data Explorers, about 28 percent of
the shares available for short-selling were being borrowed for
this purpose. That's more than the market average of about 8
percent, though it is down from a peak of more than 70 percent
Not all shares of a company's stock are available for
shorting, so a high rate of utilization suggests heavy interest
among short-sellers. Investors who believe a stock is going to
fall sometimes bet on this by borrowing the stock and selling
it, also known as "shorting."
Aeropostale Inc shares also benefited, rising 6
percent at $13.82 Wednesday morning on the New York Stock
Exchange. Aeropostale competes on price with Hollister stores,
which are also owned by Abercrombie.
Meyer said Wall Street "will assume Abercrombie's cleaner
inventory gives Aeropostale more breathing room from Hollister's
discounting." But she said that despite the encouraging trends
in Abercrombie's comparable sales and margins, she was "neutral"
on the stock as it seeks clarity in improving fashion.
Inventory management, or balancing orders with demand, has
been a major concern for Abercrombie. In recent quarters, it has
been compelled to offer discounts to its teenaged clientele who
had held back on purchases.
In the third quarter, Abercrombie sales grew 9 percent to
$1.17 billion. Markets like Asia, Scandinavia, Spain and Belgium
did well, or not as bad as expected, resulting in a 37 percent
rise in international sales.
CEO Jeffries attributed the pick up in sales to inventory
flow "getting back on track."
"I think that international stores benefited, as did U.S.
stores, from flowing new product. That was really our problem in
the second quarter when we were in the defensive posture and did
not flow product appropriately," Jeffries said.
The fact that the company was able to rein in excess
merchandise bolstered confidence that Abercrombie will be able
to keep up the cost benefits it saw this quarter, said Rahul
Sharma, founder and managing director of retail consultancy Neev
Bloated inventories encourage price discounts, eroding
CEO Jeffries also said the company was working on shortening
the lead time between placing orders to manufacturers and
getting them in stores, and would focus on current street and
runway trends for its merchandise line.
Over the past year, sales at Abercrombie & Fitch have
dropped in a segment dominated by so-called fast-fashion
retailers - rivals with a quicker turnover of inventory and
styles, such as American Eagle Outfitters and Gap Inc
, or Forever21, which offers affordable clothing for more
Abercrombie has moved to curb dwindling sales by boosting
sourcing from the United States and Central America, and
delaying expansion in troubled European markets.
The retailer expects to earn $2.85-$3.00 a share for the
full year. Analysts, on average, expected the company to earn
$2.48 a share, according to Thomson Reuters I/B/E/S.
Same-store sales for the third quarter, or sales at
established stores open at least a year, fell 3 percent, an
improvement over the 10 percent drop in the second quarter.
The company forecast a mid-single-digit drop in same-store
sales in the fourth quarter.
The relatively improved performance doesn't signal the end
of Abercrombie's troubles, analyst Brian Sozzi of NBG
"I don't believe Abercrombie is suddenly the share winner in
teen apparel land ... (and I) wonder about sustainability of the
story and whether they can become trends," he said, noting that
globally, the comparable sales at Abercrombie's flagship
locations were "quite poor."
For the third quarter ended Oct. 27, Abercrombie earned $71.5
million, or 87 cents a share, compared with $50.9 million, or 57
cents a share, in the same quarter last year. Analysts were
expecting earnings of 59 cents a share.
(Reporting by Nivedita Bhattacharjee in Chicago and David
Gaffen in New York; Editing by Bernadette Baum and David