NEW YORK (Reuters) - U.S. teen apparel retailer Abercrombie & Fitch (ANF.N) posted a much better-than-expected quarterly profit helped by cost cuts and said it plans to speed up its expansion in more profitable markets overseas, sending shares up 6 percent.
The high-end retailer, known for its casual styles and shirtless models, has seen deep sales declines for months as the recession sent cost-conscious shoppers to lower-priced rivals, which include American Eagle Outfitters Inc (AEO.N) and Aeropostale Inc ARO.N.
After steadfastly refusing to discount merchandise to safeguard Abercrombie’s cachet, the company has been lowering prices and offering discounts.
Its third-quarter results on Friday show it is resorting to less severe markdowns and that the company is getting more serious about cutting costs, said Jefferies & Co analyst Randal Konik.
Konik predicted that Abercrombie can top Wall Street estimates for the next four to six quarters, as comparisons ease and sales trends improve. He affirmed his “buy” rating on the shares.
Abercrombie said net income fell to $38.8 million, or 44 cents per share, in the third quarter ended on October 31, from $63.9 million, or 72 cents per share, a year earlier.
Excluding items, the company earned 30 cents per share. Analysts on average were expecting 20 cents, according to Thomson Reuters I/B/E/S.
Net sales fell 15 percent to $765.4 million as same-store sales, or sales at stores open at least a year, fell 22 percent.
Same-store sales, a closely watched metric of retail health, fell 18 percent at the flagship Abercrombie & Fitch chain, 22 percent at the abercrombie kids’ chain, 26 percent at Hollister and 30 percent at Ruehl, which the company is planning to close by the end of the current fiscal year.
Marketing, general and administrative expenses fell a greater-than-expected 16 percent in the quarter, helped by cuts to employee compensation and marketing. Abercrombie expects a mid-single digit percentage drop in expenses for the fourth quarter.
The company recently opened a flagship store in Milan that houses its Abercrombie & Fitch and abercrombie brands, and two of its surfer-inspired Hollister stores in Britain.
“As we look to the future, we are working toward a rate of international Hollister store openings in 2010 and 2011 significantly accelerated from 2009,” said Chief Executive Mike Jefferies on a conference call.
Earlier this month, Goldman Sachs and Credit Suisse raised their ratings on the retailer, citing the strong earnings potential of its international business.
The company said it plans to open Hollister stores in Frankfurt and Rome before Christmas and is on track to open a flagship Abercrombie & Fitch store in Tokyo on December 15.
To help support the international expansion of Hollister, the company said a new store location on Manhattan’s tourist-heavy Fifth Avenue will open as a Hollister, instead of an abercrombie store, as originally planned.
Abercrombie said it expected to incur charges of $60 million to exit the Ruehl business, which is down from its prior estimate of $65 million.
In the next fiscal year, the company expects to open flagship Abercrombie & Fitch stores in Copenhagen and Fukuoka, Japan.
Abercrombie shares rose $2.24, or 6 percent, to $39 on the New York Stock Exchange.
Reporting by Martinne Geller; Editing by Derek Caney, Lisa Von Ahn, Dave Zimmerman