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Abercrombie & Fitch posts 64% Q2 profit growth, but margins drop

Abercrombie & Fitch posts 64% Q2 profit growth, but margins drop

Abercrombie & Fitch Co. (NYSE:ANF) reported Wednesday that second quarter profit jumped 64% on higher sales, but rising costs squeezed margins, causing shares to fall over 8%.

For the three months ending July 30, the New Albany, Ohio-based teen apparel retailer posted net income of $32.0 million, or 35 cents per share, compared to a profit of $19.5 million, or 22 cents per share, a year ago.

The company said profits in the latest quarter included a 2 cent per share charge associated with store closures. Excluding this, earnings were 37 cents per share, beating analyst estimates of 30 cents by a wide margin.

"We are pleased that our results for the quarter continued to reflect strong momentum, both in the US and Europe, resulting in a 71% increase in operating income for the quarter," said chairman and CEO, Mike Jeffries.

Net sales increased 23% to $916.8 million. U.S. sales, including direct-to-consumer sales, increased 12%, while international sales jumped a whopping 74%.

Total comparable store sales for the quarter increased 9%, helped by 12% same store sales growth at its Hollister brand, and 7% growth at abercrombie kids. Its namesake brand store saw comparable sales rise 5%.

However, gross margins declined 150 basis points year-over-year to 63.6%, driven primarily by an increase in average unit costs, the company said.

"Costing pressures will be greater in the second half of the year, and macroeconomic uncertainty has increased," added Jeffries.

"However, our strong top-line momentum and overall performance for the past several quarters give us confidence that we are well positioned to navigate through this environment."

Looking ahead, the company said it anticipates opening five Abercrombie & Fitch flagship locations during the year, including the one opened in Paris in May. It also expects to close around 60 to 65 domestic stores, mainly at the end of the year through natural lease expirations.

During the second quarter, Abercrombie, which ended the period with $539.6 million in cash and equivalents, repurchased 950,142 shares of its common stock at an aggregate cost of approximately $64.4 million.

Despite the better-than-expected quarterly results, shares of the company dropped on costing pressures, by more than 8% to $65.26 as of 12:47pm EDT.

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September 25 2015
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