Abercrombie & Fitch Co. delivered a pleasant pre-Christmas surprise to investors: the teen retailer raised its full-year earnings guidance on a strong third-quarter performance, sending shares surging.
The company, based in New Albany, Ohio, reported a 41 percent increase in its net income for the third quarter as international, domestic and direct-to-consumer sales strengthened. Its results beat Wall Street expectations.
The strong quarterly performance is welcome news as A&F has been struggling to sell its preppy jeans and T-shirts when fashion trends are shifting and a rough economy has left teens around the world on tighter budgets. The latest results show that its efforts to fix its merchandise are gaining traction.
Abercrombie & Fitch, which cut prices during the recession, has been working hard to fix its problems. In particular, the company has been reacting more quickly to runway trends, a move that has resonated with shoppers.
"Our merchandise initiatives are taking hold," Mike Jeffries, chairman and CEO told investors on Wednesday. "We're working to become faster and we're doing that with conservative plans, shorter lead times...That's affecting the fashion content of our inventory."
But he cautioned, "With the critical fourth quarter still largely ahead of us and significant macroeconomic uncertainties remaining, we continue to be cautious in our near-term outlook."
The company is also taking a breather in expansion plans. It disclosed in August that it will put a hold on opening any more flagship stores and scale back on the number of locations it opens abroad, in part to prevent stores in international markets from cannibalizing sales from each other.
It announced in June that it was closing 180 U.S. stores over the next few years. The chain had already closed 135 underperforming U.S. stores in two years.
For the period ended Oct. 27, the chain reported net income of $71.5 million, or 87 cents per share, compared with $50.9 million, or 57 cents per share, a year earlier.
Analysts surveyed by FactSet forecast 60 cents per share.
Revenue climbed 8 percent to $1.17 billion from $1.08 billion. Wall Street expected revenue of $1.11 billion.
Direct-to-consumer sales rose 20 percent to $158.3 million. The results include shipping and handling.
Overseas sales increased 37 percent to $351.1 million. Sales in the U.S. were about flat at $818.6 million. The international and U.S. performances include direct-to-consumer sales.
Revenue at stores open at least a year, a key indicator of a retailer's health, fell 3 percent. The figure dropped 4 percent for the Abercrombie & Fitch brand, 3 percent for abercrombie kids and 1 percent for Hollister Co. Analysts had expected an 8.7 percent drop, according to FactSet.
Revenue at stores open at least a year excludes results from stores recently opened or closed.
The company's gross profit margin — a measure of profitability — was 62.5 percent, up 2.4 percentage points from a year ago.
For the year, Abercrombie & Fitch anticipates earnings of about $2.85 to $3 per share. Its prior guidance was for earnings between $2.50 and $2.75 per share. Analysts expected earnings of $2.49 per share.
The company said its revised outlook assumes a mid-single digit percentage decline in fourth-quarter revenue at stores open at least a year.
Shares soared $10.74, or nearly 34.5 percent, to close at $41.92 Wednesday. At Tuesday's closing price, the company's stock had been down more than 30 percent since the beginning of the year and had lost more than half their value in the past 12 months.
Abercrombie & Fitch had 1,067 stores at quarter's end.