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Abercrombie 4Q Profit Off 79%, Sees Margin Recovery

Wall Street Journal - Feb 15, 2012

Abercrombie & Fitch Co.'s (ANF) fiscal fourth-quarter earnings tumbled 79% as margins took a whack from markdowns and the teen-apparel retailer struggled with lackluster sales in its U.S. stores. But the company said it expects to see a recovery in margins this year, which sent shares surging.

The stock was recently up 12% to $50, the best gainer on the Standard & Poor's 500 Index, as executives said gross margin will still be soft in the current quarter but begin to stabilize during the second and be up significantly in the back half of the year.

Abercrombie & Fitch does not see improvement in the promotional environment, though. "Promotions are a way of life in the U.S.," Chief Executive Mike Jeffries said on a conference call. So, while international stores will stay away from the practice, "We have to almost play it month by month, week by week" domestically, he said. "We'll pull out of this promotional merry-go-round at some point."

Abercrombie & Fitch feels it can still secure a gross margin recovery despite promotions because of declining raw material costs and contributions from its high-margin international stores.

"The overall economics of our business in Europe remain very strong," Jeffries said, with sales growing 85% for the quarter. Abercrombie & Fitch's international expansion also includes China, where it will open its third mall-based store in March and expects more of its Hollister store openings this year.

Read Full Article from Wall Street Journal

- Posted: 2012-02-15 12:40:08

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