Abercrombie’s Margin Talk Cheers Investors

Abercrombie’s Margin Talk Cheers Investors
Market News
Like Us On Facebook
Like Us On Facebook

Shares of Abercrombie & Fitch Co. saw their biggest percentage gain in almost two years Wednesday after the teen-apparel retailer said reduced cost pressure will deliver “significant” margin recovery in the second half of the year.

Abercrombie stock rose 12% to $49.87, for its biggest gain since March 2010.

The company forecast profit for fiscal 2013 of $3.50 to $3.75 a share. Analysts surveyed by FactSet were looking for profit for the year of $3.55 a share.

That’s welcome news to investors after the New Albany, Ohio-based retailer ANF +11.37%  reported a 79% slide in its fourth-quarter profit early Wednesday. The main culprit: Gross margin narrowed by 7.5 percentage points to 56.1%, hurt by higher costs and increased discounts.

The company’s stock has slid 47% from a 52-week high of $78.25 to a low of $40.25 on Feb. 3 after it warned in November that it wasn’t able to raise prices to offset higher costs in an increasingly competitive environment.

Abercrombie cut prices and became more promotional during the holiday season to lure still budge-conscious shoppers in an uncertain economy, analysts said.

“The difficult macroeconomic environment we saw in the third quarter continued into the fourth quarter, and was exacerbated by all-time high cotton costs, unusually warm weather, both in the U.S. and in Europe, and a highly aggressive promotional environment,” said Chief Executive Mike Jeffries on a conference call with analysts, adding that the company wasn’t able to keep its prices higher to offset rising unit costs. “These effects put pressure on our selling margin beyond what we anticipated.”

Overall, fiscal fourth-quarter profit fell to $19.6 million, or 22 cents a share, from $92.6 million or $1.03 a share a year earlier. Sales in the quarter ended Jan. 28 rose 16% to $1.33 billion. Comparable-store sales were flat.

Excluding asset impairment, store-closing and other charges, the company said it would have earned $1.12 a share in the latest period. Analysts surveyed by FactSet estimated profit of $1.13 a share.

While he remained cautious about sales and the promotional environment in the United States, Jeffries said there were some positive signs. For one, the biggest spike in cotton costs the industry has seen in at least a decade is reversing course, and is expected to lower costs beginning in the second quarter and significantly in the second half of the year, he commented.

Cotton prices have declined 37% from their spring 2011 high, according to Credit Suisse analyst Christian Buss.

Inflation in cotton costs last year has hurt not only Abercrombie and its teen rivals American Eagle Outfitters Inc. AEO +5.74%  and Aeropostale Inc. ARO +0.68% , but also other companies from Nike Inc. NKE +0.74%  to Ralph Lauren Corp. RL -0.11%

In the sector Wednesday, American Eagle was up 4.2%. Aeropostale gained 1%. The S&P Retail Index dipped 0.2% in contrast.

Jeffries also said the company’s business in Europe, a key area of its international expansion, is still going strong despite the region’s debt crisis that has hurt consumer sentiment. Sales in Europe rose 85% and its Hollister chain, which makes up about two-thirds of the company’s store business in Europe, also continued to see positive same-store sales.

Abercrombie’s direct business also was solid both in the United States and overseas, according to the chief executive.

In China, where Abercrombie plans to open its third mall-based store in March, Jeffries said the company has seen a steady increase in momentum. “Our overall business with Chinese customers is very modest today, including our U.S. and European tourist stores, and we see growing awareness and familiarity with our brands in China as a major opportunity.”

Market Watch

Share Tweet
React
Like Us On Facebook
Like Us On Facebook

Preston Waters

Preston Waters is a thinker. He's not your traditional philosophical persona, however, as he leaves no topic untouched. Covering all the bases, from business to women, Preston Waters is the ultimate man's man for Gen-Y.

More In Market News

News Preston Waters

Stocks Off to Stellar Start in May

Stocks were kicking off May in high style Tuesday, posting sharp gains after a much better-than-expected report on U.S. manufacturing activity. The Dow Jones Industrial Average was rising 103 points, or 0.8%, at 13,317, after hitting a four-year high at 13,338. The S&P 500 was up 14 points, or 1%, at 1413, and the Nasdaq was adding 23 points, or 0.7%, at […]

News Preston Waters

Bank Of America, JPMorgan: Dow Midday Movers

U.S. stocks were rising in midday action Tuesday following a better-than-expected read on U.S. manufacturing activity.The Dow Jones Industrial Average was up more than 116 points, or 0.9%, at 13,330. The biggest percentage gainers within the Dow were Bank of America (BAC), JPMorgan Chase (JPM) and Intel (INTC). Shares of Bank of America rose 2.59% to $8.32. The bank said Tuesday it plans to lay […]

News Preston Waters

Monster Stocks Soar Amid Rumors Coca-Cola Is Set To Buy Energy Drink

Monster Beverage Corp’s shares soared on Monday following a report that Coca-Cola Co. was considering buying the energy drink maker. The Wall Street Journal cited unnamed people in reporting that the world’s biggest soft drink maker was in talks to buy Monster. If a deal transpired, Monster would be Coca-Cola’s largest brand acquisition ever. Monster declined […]

News Preston Waters

Stocks Surge After Strong Manufacturing Report

Stocks were surging in morning action Tuesday after a much better-than-expected report on the pace of national manufacturing activity in April.The Dow Jones Industrial Average was rising 80 points, or 0.6%, at 13,294. The S&P 500 was up 12 points, or 0.8%, at 1410, and the Nasdaq was adding 29 points, or 1%, at 3075. Stocks finished modestly lower Monday, marking […]

News Preston Waters

Bank Of America Keeps Shrinking

Bank of America (BAC)’s plan to lay off some of its highest-paid executives looks like the right response to the current banking environment. The Wall Street Journal reported Tuesday the bank will cut 2,000 positions in its investment banking, commercial banking and non-U.S. wealth-management units targeting “the high-earning employees whose efforts helped Merrill Lynch account for the bulk of […]

News Preston Waters

Stock Market Story: May 1

The first trading day of May got off to a mixed start early Tuesday with all three major U.S. equity indices honing to close to the flat line ahead of a key report on the pace of U.S. manufacturing activity in April. The Dow Jones Industrial Average was down 9.5 points, or 0.07%, at 13,204.The S&P 500 was up less than a […]

Also On Elite

Sports

How One Baseball Player’s Amazing Story Inspired The Ice Bucket Challenge (Video)

For the waves of people who have accepted the Ice Bucket Challenge this summer, there was really only one important thing to know beforehand: the freezing cold water being poured on top of their heads would help raise awareness for Amyotrophic Lateral Sclerosis. But even beyond that very sufficient reasoning, there’s an amazing story that few […]

Wellness

How Time Really Does Heal All Wounds If You Just Let It Run Its Course

We have all been there: We’ve all experienced that heartbreak, fight or relationship that scarred us to the bone. We have all heard the same subsequent advice before: “Give it time.” Time heals all wounds, right? Is there truth to that? What feels like false hope might actually have some scientific explanation as to why […]