A&F to close 60 stores

Upscale teen retailer Abercrombie & Fitch is to close 60 stores in the wake of falling share prices and its focus on expanding internationally. The Ohio-based company this season lowered prices to compete with brands such as American Eagle

Outfitters for teen dollars. CEO Mike Jeffries said in a call with analysts that its average unit retail price was about 15 percent lower in the second quarter than a year earlier.

Lower sourcing costs helped compensate for the retail price cuts, but Abercrombie's gross margin suffered — just as it said it predicted.

"Substantially, all of the promotions we ran during the quarter were planned in advance and were driven by our expectation that they would be effective in driving sales productivity and gross profit dollars," Jeffries said. "As we said at the beginning of the year, we are willing to tolerate some gross margin rate erosion in the near term to accomplish that."

Also worrying investors was a 47 percent increase in the company's inventory. Many retailers have lowered inventory in an effort to avoid markdowns, but CFO Jonathan Ramsden said the increase was necessary to avoid being understocked in the fall.

"We believe this is necessary to correct for the fact that we were significantly underinventoried and below presentation standards coming into the fall season last year," he said.

Quarterly net income totaled $19.5 million, or 22 cents per share. A year ago the company lost $26.7 million, or 9 cents per share. Earnings were 24 cents per share excluding a charge for closing stores.

In the U.S., Abercrombie plans to open three Abercrombie & Fitch stores; three Abercrombie Kids stores; three of its surf-themed Hollister stores; two Gilly Hicks stores, which sell underwear and sleepwear; and five outlet stores.

It plans to close 60 domestic stores, mainly though lease expirations. Internationally, the company plans to open namesake stores in Copenhagen, Denmark, and Fukuoka, Japan.

It plans to open 20 international mall-based Hollister stores, down from prior guidance of 25 stores.

In the fourth quarter, it will open a new namesake store in Canada and its first international Gilly Hicks store in the U.K.

Image: A&F