Abercrombie & Fitch 2Q profit falls

Abercrombie & Fitch Co. said Friday that second-quarter profit fell amid a consumer spending slowdown, but the teen-apparel retailer said it will not become more promotional just to drive short-term results.

The company also offered a full-year outlook that fell short of analyst expectations.

As consumers cut back amid rising food and gas prices, value-oriented retailers like Aeropostale Inc. have fared better than higher-priced competing mall stores. Amid tougher competition some teen apparel retailers — such as American Eagle Outfitters Inc. — have begun to focus more on value to boost sales.

But in a conference call with investors on Friday, Abercrombie & Fitch Chief Executive Mike Jefferies said the company is taking a longer-term view, focusing on international growth and even considering raising prices.

"We do not compete on price or promotion regardless of macroeconomic conditions, although it may be both easy and tempting to drive short-term sales with pricing and promotional efforts," Jefferies said.

In fact, he said the company might even raise prices, "where quality and iconic status dictate."

Meanwhile, Abercrombie is focusing on expanding internationally to offset the sluggish U.S. economy. It plans to open three Hollister stores in Britain in 2008 and will also open stores in Milan, Copenhagen and Tokyo in 2009.

"We will not sacrifice this investment and growth plan for short-term results," Jefferies said.

For the three months ended Aug. 2, profit fell 4 percent to $77.8 million, or 87 cents per share, from $81.3 million, or 88 cents per share, a year earlier. Results include a penny-per-share charge related to an executive's departure.

Revenue rose 5 percent to $845.8 million. Analysts polled by Thomson Reuters expected profit of 86 cents per share on revenue of $851.4 million.

Earlier this month, Abercrombie had cut its second-quarter profit outlook to 86 cents per share, including the penny-per-share charge, from an earlier estimate of 92 cents to 96 cents per share, based on weaker-than-expected July same-store sales results.

Sales in stores open at least one year, a key retail metric, fell 4 percent. Same-store sales rose 3 percent at namesake stores, fell 11 percent at abercrombie children's stores, fell 9 percent at Hollister stores and 22 percent at Ruehl stores.

The company now expects earnings of $3.40 to $3.45 per share for the second half and $4.95 to $5 for the full year. Analysts expect $5.36 per share.

Abercrombie expects same-store sales to drop 7 percent in the fall.

S&P analyst Marie Driscoll kept her "Strong Buy" rating on Abercrombie.

"We see further aspirational positioning of the Abercrombie brands, despite weak retail sales trends, and expect this brand strategy to pay back in second half," she wrote in a client note on Friday.

Shares rose $1.80, or 3.4 percent, to $54.37 in midday trading. The stock has traded between $48.21 and $85.77 during the past 52 weeks.

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