Higher Costs Weigh On Abercrombie & Fitch in Third Quarter

Abercrombie & Fitch said Wednesday that its third-quarter profit edged up as higher costs for commodities such as cotton offset rising sales of its preppy t-shirts and jeans.

But its earnings were well short of Wall Street expectations. Its shares tumbled almost 11 percent in premarket trading.

After losing market share to cheaper competitors during the recession, Abercrombie & Fitch has rebounded as it focuses on international expansion and closing underperforming stores. But its recovery is being hindered by higher costs - cost of goods sold was up 34 percent during the quarter. All retailers and clothing makers have been facing higher costs for cotton and other commodities.

Some have offset that by raising prices, but Abercrombie & Fitch Co. said its average unit retail price was flat during the quarter.

"Our results for the third quarter were impacted by costing challenges combined with greater uncertainty in the macroeconomic environment," said CEO Mike Jeffries in a statement.

The New Albany, Ohio-based retailer's net income rose to $50.9 million, or 57 cents per share, for the three months ended Oct. 30. That compares with $50 million, or 56 cents per share, a year ago. Analysts polled by FactSet expected earnings of 72 cents per share.

Revenue rose nearly 22 percent to $1.08 billion from $886 million. Analysts expected revenue of $1.07 billion.

U.S. revenue rose 14 percent to $920.2 million. International sales rose 56 percent to $255.7 million.

Revenue in stores open at least one year, a key gauge of a retailer's performance, rose 7 percent, including a 4 percent gain at Abercrombie & Fitch, a 6 percent gain at Abercrombie kids stores and an 8 percent gain at surf-themed Hollister Co.

Abercrombie reiterated that it plans to open 40 international mall-based Hollister stores during the year. About 25 have opened as of Oct. 29. It now plans to open Abercrombie & Fitch flagship stores in Amsterdam and Munich in 2012, in addition to previously announced flagships in Hamburg and Hong Kong.

Shares fell $5.92, or 10.6 percent, to $49.78 in premarket trading. The stock is down 3 percent since the beginning of the year.