By MAE ANDERSON (AP)
NEW YORK — Preppy clothing seller Abercrombie & Fitch Co.’s third-quarter profit fell 39 percent, as weak domestic sales offset cost cuts and stronger international performance.
Still, results were better than expected and shares rose 6 percent in morning trading.
Abercrombie & Fitch has seen sales slump and lost market share to lower-priced competitors such as Aeropostale Inc. It has kept prices high and kept investing internationally amid the recession.
On Friday, CEO Mike Jeffries said Abercrombie will begin rolling out some items with lower prices in the spring quarter but said the company’s business model does not support offering too many discounts that might hurt the brand’s image.
“We are aspirational brands for our customer, but are reacting to the current environment and trying to improve the domestic sales trend,” said Jeffries. “Domestically as you all know we are seeing that the customer is extremely deal-driven, price-conscious, and we are aware of that.”
He added that Abercrombie is reviewing domestic leases that expire over the next few years and could close some underperforming stores.
During the quarter, knit tops, graphic tees and denim were weak sellers, while woven shirts and women’s dresses were stronger.
Denim has been one of the stronger fashion categories amid the recession, and Jeffries said the company could have sold more if it had stocked more.
“We seriously underplanned the inventory levels in denim, and I think you’ve seen that in stores,” Jeffries said. “We are working very hard to catch up.”
Retailers have been working to cut inventory in an effort to avoid markdowns, but too-low inventory leads to lower sales. Inventory per square foot was down 34 percent in the quarter. Jeffries expects to have more inventory in stores by the spring.
“We know that our stores have looked light during the past quarter, and we are working to correct this,” he said.
Profit for the three months ending Oct. 31 fell to $38.8 million, or 44 cents per share, from $63.9 million, or 72 cents per share last year. Excluding charges related to closing Ruehl and a tax benefit, profit was 30 cents per share.
That beat analysts’ average expectations of 20 cents per share, according to a Thomson Financial poll.
Revenue fell 15 percent to $765.4 million, from $896.3 million, squeaking past analyst expectations of $764.5 million.
Shares rose $2.18, or 5.9 percent, to $38.84 during morning trading.
Sales in stores open at least a year, a key measure of a retailer’s health, dropped 22 percent. That includes a 18 percent drop at namesake stores, a 22 percent drop at abercrombie children’s apparel stores, and a 26 percent drop at its surf-themed Hollister stores and 30 percent at Ruehl stores.
That measure is important because it excludes the effects of new stores and store closings.
Weak domestic results were offset by direct-to-consumer sales and sales at new stores, particularly international stores.
CFO Jonathan Ramsden said sales were in line with the first two quarters of the year and Abercrombie does not expect sales in the fourth quarter — which includes the important holiday season — to vary much from the company’s weak sales over the past two years.
The company, based in New Albany, Ohio, cut marketing, general and administrative expenses by 16 percent, to $88.1 million from $105 million.
Abercrombie continued to expand internationally, opening Abercrombie & Fitch and abercrombie flagship stores in Milan and two Hollister mall stores in the U.K.

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