Teen clothing retailer Abercrombie & Fitch Co (ANF.N) said on Wednesday the pace of declines in its sales has slowed this month as it reported a quarterly profit that slightly topped its recent limp forecast, driving shares up more than 10 percent.
Abercrombie reported that sales at stores open at least a year fell 10 percent during its fiscal second quarter and said it froze plans for new international flagship stores and will slow the build-up of merchandise inventory.
Chief Executive Mike Jeffries told a conference call that while the company still expects same-store sales to fall during the second half, the pace has slowed so far this quarter, pointing to "at least a stabilization" after a disastrous quarter that saw profit fall by half.
Inventory will rise at a slower clip than sales for the rest of the year, he said. Abercrombie has had to severely mark down unsold merchandise this year, decimating its profits.
The chain has lost shoppers to American Eagle Outfitters Inc (ANF.N), Aeropostale Inc ARO.N and Gap Inc (GPS.N) in the last year and struggled to offer compelling merchandise amid disappointing sales at its international flagships, meant to anchor an ambitious overseas expansion.
Despite some encouraging signs, the company still faces competition heading into the holiday season.
"The brand is losing share within the teen space to American Eagle Outfitters, which has done a better job with fashion," Nomura analyst Paul Lejuez said in a research note.
Jeffries said the company has put new flagship undertakings on hold and was scaling back projects stores in Dublin and Seoul to a smaller scale.
"Cannibalization has clearly been a factor as our brands have become more widely available in Europe," Jeffries said, pointing to the London Abercrombie & Fitch flagship, which has been devastated by Europe's slow economy and the chain's expansion.
Same-store sales at the company's international stores fell 26 percent in the second quarter that ended July 28.
In Europe, Abercrombie has had to compete with Sweden's H&M (HMb.ST), the world's second-largest fashion retailer, whose sales grew in July for a third straight month. H&M generates most of its sales in Europe.
Jeffries said Abercrombie was increasing its sourcing from the United States and Central America, which are typically more expensive than Asia, to shorten the time between placing orders and getting clothes into stores, in a bid to compete with "fast fashion" retailers like H&M.
Abercrombie shares rose 10 percent to $35.56 in late morning trading, but remain well below the 52-week high of $77.47 hit last October.
MAY BUY BACK MORE SHARES
The company earned $15.5 million, or 19 cents per share, in the second quarter ended July 28, down from $32 million, or 35 cents per share, a year earlier.
Two weeks ago, it forecast profit of 15 cents to 18 cents per share, roughly half of what analysts estimated at the time. It also slashed its full-year profit forecast.
Quarterly sales rose 4 percent to $951.4 million, largely because of an increase in stores.
Sales at stores open at least a year, or same-store sales, dropped 11 percent for the flagship Abercrombie & Fitch stores, 10 percent for abercrombie kids, and 10 percent for Hollister, the company's largest brand by sales.
For the year, Abercrombie reiterated its August 1 forecast of earnings of $2.50 to $2.75 per share. It sees same-store sales falling 10 percent in the second half, which will include the back-to-school and holiday seasons - the two busiest periods for clothing chains.
Abercrombie is raising its share buyback authorization by 10 million shares to 22.9 million, just over one-quarter of its outstanding shares. Analysts had expected the move, which could in theory boost the share price.
Finance chief Jonathan Ramsden said the company, which did not buy back any shares in the second quarter, would wait for sales trends to stabilize before repurchasing any stock.
(Editing by Jeffrey Benkoe, John Wallace and Leslie Adler)